Posted: 27 Mar 2015 Last revised: 4 Apr 2015
Date Written: March 25, 2015
We investigate whether missing R&D expenditures in financial statements indicates a lack of innovation activity. Patent records reveal that 10.5% of missing R&D firms file and receive patents, which is 14 times greater than zero R&D firms. Pseudo-Blank R&D firms (missing R&D firms with patent activity) demonstrate patent filings analogous to the bottom 90%-95% of the positive R&D population. Multivariate difference-in-differences tests indicate that Pseudo-Blank R&D firms are more likely to report R&D after an exogenous auditor change. Finally, we provide simple Monte Carlo simulations to evaluate different methods to handle missing R&D in empirical research.
Keywords: Research and Development, R&D reporting, Disclosure, Blank R&D, R&D simulation
JEL Classification: M41, O32, D83
Suggested Citation: Suggested Citation