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| Investor Sentiment, Corporate R&D Investment Catering and Financial Information Quality |
| Luo qi1, Li Hanqi1, Su Yuyue1, Cheng Siqi2 |
| (1. Economics and Management School, Wuhan University, Wuhan 430072, China;2. Price Waterhouse Coopers, Montreal H3B 4Y1, Canada) |
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Abstract Companies that conduct quite a lot of R&D investments and actively carry out innovative activities are often considered to have good development opportunities and promising profitability by investors in the stock market. Therefore, the company's R&D investment behaviors have become an important information reference for investors to evaluate the company. At the same time, with the purpose of promotion the transformation of economic growth mode, the Chinese government has issued a series of preferential policies to encourage companies to carry out R&D innovation to improve the technology level. This, in turn, makes the R&D behavior of a corporate highly concerned and sought after by investors in the market. In the Internet environment, the investor sentiment is easy to spread rapidly and affect other investors, and it may lead to irrational emotions in the capital market on the company's stock price and affect the decision-making behaviors of the corporate managers. #br#This paper uses the posting messages of Eastmoney Shanghai Securities Composite Index Bar from 2010 to 2020 to construct an investor sentiment indicator. On this basis, it studies the R&D catering behaviors and innovation efficiency of A-share listed companies in Shanghai and Shenzhen Stock Exchanges to analyze the relationship between the managers' catering behaviors and the quality of corporate financial information. The research results show that the high risk of R&D projects and the uncertainty of future returns result in the fact that investors find it time-consuming and difficult to accurately identify the true values of the projects. In this case, investors will have irrational expectations of the company's prospects under the influence of psychological bias, which will lead to irrational fluctuations in stock prices. Therefore, corporate managers have sufficient motivation to increase R&D investment expenditure so as to take advantage of the overvaluation of stock prices to obtain private benefits. However, managers' catering behaviors will lead to the reduction of high-quality innovation patents and the increase of low-quality innovation patents, and thus it is not conducive to the improvement of the company's innovation efficiency and long-term value growth. In addition, managers tend to hide negative information in order to further meet the psychological expectations of investors. They are also motivated to manipulate corporate financial information disclosure through earnings management and other kinds of methods to cooperate with their R&D investment catering behaviors, which consequently brings about a decline in the quality of corporate financial information. The research results of this paper confirm that an irrational capital market will lead to the failure of corporate governance mechanism. In this case, the government supervision department that makes corresponding regulatory policies plays a vital role in correcting and restraining the irrational behaviors of the capital market. They should formulate policies to clarify the disclosure standards of the financial reports, and restrict the companies from publishing exaggerated or misleading statements. It is feasible to use the big data technology to monitor the changes of the network public opinion, so that the scientific and technological supervision runs through the company's information disclosure before, during and after the process, which helps to ensure the comprehensiveness and timeliness of the supervision#br#From the theoretical perspective, this study makes the following contributions. Firstly, it expands the method of measuring the irrational characteristics of investors in the big data environment and makes certain contributions to improve the measurement accuracy and credibility of investor sentiment. Secondly, from the perspective of corporate R&D investment, this study advances the understanding of managers' catering behaviors. Finally, this paper reveals that capital market information noise could influence the quality of corporate financial information by distorting corporate R&D investment behaviors, which enriches the research on the consequences of corporate catering behaviors. From the perspective of policy practice, this study has important and significant reference for listed companies in China to optimize the R&D investment behaviors, enhance their innovation capability and form market competitive advantages. Meanwhile，it provides important decision-making reference for the relevant government departments to further improve the supervision of China's capital market, protect the rights of small and medium-sized investors, and improve the functions of China's capital market.#br#
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Received: 28 November 2022
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