Innovation and annual report readability
Dimitrios Gounopoulos, Winifred Huang, Min Yang
Research Policy · 2025 · Volume 54 · Issue 8
DOI: 10.1016/j.respol.2025.105301
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.
Keywords
Annual report readability, Patent, Bog index, R&D
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