Abstract

In 2011, the Korean government relaxed listing requirements for the KOSDAQ market for high－tech growth firms in order to facilitate their access to the stock market. In general, high－tech growth firms are newly established biotech companies and there typically exists high information asymmetry between their management and investors. Thus, the KOSDAQ market regulator introduced the milestone disclosure rule effective 2012 for high－tech growth firms that were listed on the KOSDAQ market with less stringent criteria. The rule mandates that high－tech growth firms must disclose information about their on－going projects and the progress of the projects on a semi－annual basis (hereafter milestone disclosures). Information released through the milestone disclosures includes investment plans for projects and management forecasts for sales and operating income. However, the regulator abolished the rule in 2015 on the basis that the milestone disclosures were not effective. However, there was no empirical investigation of the effectiveness of the milestone disclosures to support the decision to abolish the rule. Prior research finds that investment plans for projects and management forecasts are value－relevant and affect stock prices. This suggests that the milestone disclosures might have been value－relevant because the milestone disclosures contained information about investment plans for projects being undertaken and management forecasts. Thus, this study empirically examines value－relevance of the milestone disclosures. The results reveal that the milestone disclosures are value－relevant. In particular, investment plans and management earnings forecasts have the significantly positive relationship with stock prices. Also, during the milestone disclosure period, sample firms have higher stock prices than control firms which are matched on industry and total assets at the end of the prior year. Furthermore, management operating income forecasts provided through the milestone disclosures have a significantly positive relationship with abnormal stock returns. Our results suggest that the milestone disclosures provided value－relevant information and affected stock prices. Our findings have implications for policy－makers；Decisions on whether to abolish existing disclosure rules should be preceded by empirical investigations of the effectiveness of those rules.

Keywords

• high－tech growth firm
• management forecast
• market reaction
• milestone disclosure
• value relevance

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