A Study on the Quality of R&D Expenditure Information and Adverse Selection Costs

This study examines how the magnitude of the impact of R&D expenditures on firm performance(the quality of R&D expenditure information) affects adverse selection costs. Specifically, we test (1) whether the magnitude of adverse selection costs differs across firms when the quality of R&D expenditure information differs, and (2) whether the effect of R&D expenditure information quality on adverse selection costs depends on the degree of stock market information asymmetry. The empirical analysis is conducted using stock price and accounting data of listed firms over the period from 2014 to 2023. Panel regressions and Fama-MacBeth analysis are used to examine the impact of firm-specific R&D information quality variables on firms' adverse selection costs. The empirical results are consistent with our hypotheses. We find that the cost of adverse selection is smaller when the quality of R&D information is higher, and the negative relationship between R&D information quality and adverse selection cost is stronger in samples with a poorer stock market information environment. The significance of this study is that it examines the relationship between the quality of R&D expenditure information and the cost of adverse selection based on the previous studies on R&D expenditure information and the cost of adverse selection. We hope that this study will have various implications for corporate management practice and academic research.