The impact of narrative R&D disclosures on bond issuance spreads of Chinese firms

This paper investigates how narrative R&D disclosures of listed firms influence their bond issuance spreads under China's mandatory R&D disclosure regime. Taking advantage of machine learning and textual analysis techniques, we construct measures of narrative R&D disclosures based on disclosure quantity and readability. We find a robust positive relationship between the quantity of narrative R&D disclosures and bond issuance spreads, and the increased information risk premium originating from more opaque information environments of disclosing firms is the internal mechanism. Further evidence shows that the readability of narrative R&D disclosures can alleviate the positive relationship between narrative R&D disclosure quantity and bond issuance spreads. Moreover, we find a heterogeneous effect of narrative R&D disclosures on the issuance spreads of different types of bonds. And more narrative R&D disclosures can reduce the probability of corporate bond issuance and the ratio of firms' bond financing. Overall, our research demonstrates an unexpected impact of mandatory narrative R&D disclosure on corporate bond issuance costs, indicating that more narrative R&D disclosures do not necessarily deliver clearer information.