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Earnings Variability and Disclosure of R&D: Evidence from Press Releases


  • We are indebted to Eli Amir, Brad Barber, Simon Benninga, Amihud Dotan, Dan Givoly, Itay Kama, Shmuel Kandel, Michael Maher, Aharon Ofer, Dennis Oswald, Gregory Sommers and Paul Zarowin for their valuable suggestions. We thank the participants to the Conference of Accounting and Finance in Tel Aviv, the European Accounting Association Annual Congress and the American Accounting Association Annual Meeting for their helpful comments. Dan Weiss performed part of this research during a visit to the University of California at Davis. Research assistance from Michael Bowers is highly appreciated. Financial support from the Joseph Kasierer Institute for Research in Accounting and TIM – Technion Institute of Management is greatly appreciated.


This study explores press releases in the pharmaceutical industry to expand our understanding of how investments in R&D outlays influence uncertainty of future earnings. The findings make two contributions to the literature. First, they provide evidence that equal investments in different R&D ventures are associated with differential variability of future earnings. This result suggests that non-financial information contained in press releases captures attributes of firm-specific R&D investments that are not revealed through R&D expenditures reported in financial statements. Second, prior studies have indicated that investments in pharmaceutical R&D are associated with the highest variability of future earnings among all industries. The results, however, suggest that for a large class of low-risk pharmaceutical R&D investments, the relative variability of future earnings is low and similar to that generated by capital expenditures. The findings hold when we control for endogeneity in voluntary disclosure of press releases.