MANDATING DISCLOSURE OF R&D BENEFITS AND COSTS TO EXTRACT MANAGERS' PRIVATE INFORMATION: OBSTACLES AND PRACTICAL CONSIDERATIONS
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This study suggests that mandating managers to disclose information about the net benefit of R&D outside financial statements is worth to be considered as one potential approach to improve the market's valuation of R&D and to improve managers' R&D-related decision making process. A transition of the R&D reporting practice from cost focused to net benefit focused is viewed necessary. A stream of two mandatory reporting systems is established for the transition to take place more smoothly. It is expected that information asymmetry can be reduced after information about R&D net benefit becomes publicly available. This study contributes to the literature in three ways. First, this is the first study which seriously considers the direct disclosure of net benefit of R&D as a way to improve the R&D reporting practice. Second, this study proposes a stream of reporting systems in the transition. The current R&D reporting practice can be transited gradually toward the desirable R&D reporting practice following the stream. Finally, this study points out that both market participants and firms will be potentially benefited in the transition. Not only the negative impact of information asymmetry will be reduced but also some potential subsidiary benefits will be provided by the transition.