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Innovation and annual report readability

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  • Gounopoulos, Dimitrios
  • Huang, Winifred
  • Yang, Min

Abstract

We explore the relationship between innovation and annual report readability using multiple innovation metrics. While lower readability can boost innovation, an inverted U-shaped link with patents suggests that excessive opacity becomes counterproductive. We identify two underlying mechanisms—preserving competitive advantages and concealing risks. Consistent with the first mechanism, the innovation-readability link is stronger in competitive markets, where firms reduce transparency to better protect themselves from competitors. In line with the second mechanism, the innovation-readability link is stronger for riskier firms. Overall, our findings support the idea that firms strategically tailor their disclosure to match their innovation needs.

Suggested Citation

  • Gounopoulos, Dimitrios & Huang, Winifred & Yang, Min, 2025. "Innovation and annual report readability," Research Policy, Elsevier, vol. 54(8).
    • Handle: RePEc:eee:respol:v:54:y:2025:i:8:s0048733325001301
    DOI: 10.1016/j.respol.2025.105301
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    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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