Measuring the effectiveness of Australia's Statutory-backed continuous disclosure policy on 'innovative' investment disclosures

We examine the impact of the introduction in 1994 (and subsequent amendments) of the statutory-backed continuous disclosure policy (SBCDP) in Australia. Our analysis measures impact by focusing on the investment disclosure propensity, and investment announcement abnormal returns of more innovative investments, defined as disclosures of R&D and IT expenditures. We also examine CAPEX investment disclosures as a benchmark in which to compare R&D and IT disclosures. Using regression models to control for typical characteristics (i.e., firm, industry, macroeconomic and time) that are correlated with investment likelihood, we find that post SBCDP adoption in 1994, firms were less likely to disclose any investment type. We do, however, find a significant increase in disclosure likelihood after the adoption in 2003 of stronger non-disclosure legislation, and tougher penalties. Nevertheless, compared to CAPEX disclosures, firms are still less likely to disclose R&D investments, even after the adoption of tougher penalties in 2003. We interpret this finding as evidence of firms unwilling to forego competitive advantages, which likely arise with R&D investments. We also find some evidence of increased announcement returns post SBCDP adoption, but only for CAPEX investments. The abnormal returns to R&D investments appear to be uncorrelated with changes in regulation, and remain fairly constant over the sample period.