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Does the annual report readability improve corporate R&D investment? Evidence from China

Author

Listed:
  • Ya-Guang Du

    (Beijing University of Posts and Telecommunications)

  • Shu Li

    (Nankai University
    Nankai University)

  • Nan-Ting Kuo

    (Shandong University of Technology)

  • Dan Li

    (Tianjin University of Technology)

Abstract

Our study investigates the association between annual report readability and corporate R&D investment decisions. We argue that a more readable annual report enhances investors’ disclosure processing fluency and lowers information asymmetry, which mitigates insufficient funds and thus improves R&D investment levels. By exploring a panel sample of 26,359 firm-year observations for the period of 2007–2019 based on China’s A-share listed firms, we find that increased readability of annual reports is associated with higher R&D investment. These results hold after a series of robustness checks. Mediation analysis reveals that annual report readability prompts R&D investment mainly through reducing financial constraints and supervising tunneling behaviors. Cross-sectional tests suggest that the positive association between readability and R&D investment is more pronounced in lower managerial manipulating incentives and lower disclosure processing ability of investors and exists peer spillover effects. Our results provide a novel insight that the economic impact of qualitative discourses can extend to management’s financial decisions. Our study contributes to the literature on annual report readability and R&D under-investment governance.

Suggested Citation

  • Ya-Guang Du & Shu Li & Nan-Ting Kuo & Dan Li, 2025. "Does the annual report readability improve corporate R&D investment? Evidence from China," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 22(2), pages 440-460, June.
    • Handle: RePEc:pal:ijodag:v:22:y:2025:i:2:d:10.1057_s41310-024-00240-9
    DOI: 10.1057/s41310-024-00240-9
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