| This dissertation examines the relation between reported financial performance and qualitative disclosure in the research and development (R&D) disclosure setting. While the influence of performance on firms' disclosure decisions is a fundamental issue in the accounting literature, prior studies generally focus on how performance relates to the disclosure of quantitative financial information that directly summarizes financial performance. However, a significant quantity of firms' disclosure is not directly captured in the financial statements and is more qualitative in nature (e.g., narratives or text). Using a sample firms make R&D investments, I investigate whether reported earnings performance influences firms' incentives to disclose qualitative R&D-related information. I hypothesize that as current earnings performance decreases, R&D firms' incentives to provide more R&D-related disclosure increase because lower earnings performance is associated with less useful financial statements and higher information asymmetry. Based on a detailed analysis of R&D-related disclosures, I find, consistent with my hypothesis, that current earnings performance is negatively related to qualitative disclosure. I also find that this relation is more pronounced for firms that place more importance on R&D and for firms with higher outside monitoring. In addition, I examine whether the qualitative and quantitative disclosures of R&D firms relate differently to reported performance. While my main results suggest that reported earnings performance is negatively associated with R&D-related disclosure, I find that R&D firms' decisions to provide earnings guidance, a more quantitative type of disclosure, are positively related to reported performance. These findings highlight the complexity of firms' disclosure strategies and suggest that performance can influence different types of disclosures in different ways. Thus, these findings have important implications for future research that considers firms disclosure decisions. |
