Specialization or diversification? The role of financial statement comparability in shaping firm innovation strategy

Understanding how financial reporting shapes firms’ innovation strategies is central to research at the intersection of accounting and strategic management. While prior studies examine the informational role of financial reporting, the impact of financial statement comparability (FSC) on innovation choices remains underexplored. Drawing on data from Chinese A-share listed firms, this study explores how FSC shapes firms’ choices between specialization-oriented and diversification-oriented innovation strategies. We find that higher FSC is significantly associated with greater related variety but has no significant effect on specialization or unrelated variety. Heterogeneity analyses show that the effect is stronger in high-tech industries and that FSC facilitates unrelated diversification among state-owned enterprises and firms in the decline stage of the firm life cycle. In the green innovation domain, FSC primarily promotes specialization rather than diversification. Additional tests reveal important boundary conditions: financing constraints weaken, whereas lower market competition strengthens, the positive association between FSC and related variety. Managerial and organizational factors also matter. CEO functional diversity reduces the marginal effect of FSC, whereas dynamic capabilities strengthen it up to a certain threshold. Our study provides new evidence on the role of financial disclosure in shaping firms’ innovation strategies and offers useful insights for practitioners.