Impact of Narrative <scp>R&amp;D</scp> Disclosure Characteristics on Stock Return Volatility

ABSTRACT This study investigates the impact of narrative R&amp;D disclosure characteristics—readability, sentiment, and quantity—on stock return volatility. A comprehensive longitudinal regression model that includes these three characteristics, along with their interactions with R&amp;D investment intensity, outperforms the other models. The readability of narrative R&amp;D disclosures significantly affects volatility, with more readable disclosures associated with reduced fluctuations. Additionally, readability moderates the effect of R&amp;D investment intensity on volatility. No direct effect of disclosure sentiment on stock return volatility is observed, but disclosure sentiment influences the relation between R&amp;D investment intensity and stock return volatility. Finally, there is a strong positive correlation between the quantity of R&amp;D disclosures and stock return volatility, suggesting that excessive R&amp;D information tends to increase stock return fluctuations. The study provides practical implications for both investors and firms. It suggests that investors may consider R&amp;D disclosure characteristics to better assess the risk of stock return fluctuations when selecting shares of R&amp;D‐intensive firms and offers guidance for firms on delivering clearer and more balanced R&amp;D disclosures to help reduce market volatility.