Does financial information presentation format matter? Evidence from Chinese firms’ reporting of research and development expense

Partha Mohanram, Wei Sun, Baohua Xin, Jigao Zhu

Review of Accounting Studies · 2025 · Volume 30 · Issue 2

Abstract

This paper investigates the effects of a regulatory change in China of the presentation format for research and development (R&D) expense, which mandates public firms to explicitly present R&D expense on their income statements. We predict that this regulation will impact nonstate-owned enterprises (non-SOEs), which care about stock market valuation, more than state-owned enterprises (SOEs). We find that non-SOEs report significantly higher R&D expense post regulation. Furthermore, the R&D increase strengthens for firms facing higher peer pressure to pursue R&D and high-tech firms and weakens for firms with higher institutional investment. The positive valuation implication of R&D diminishes post regulation, suggesting that investors discount the increase in R&D expense. An additional analysis shows that firms’ innovation efficiency decreases post regulation.

Keywords

Research and development expense, Presentation format, Earnings management, Capital market response, Real effects

Enable JavaScript for citation tools and additional paper interactions.