Paradoxical transparency? Capital market responses to exploration and exploitation disclosure

Lane Matthews, Mariano L.M. Heyden, Dan Zhou

Research output: Contribution to journalArticleResearchpeer-review


We draw on information risk theory and paradox theory to examine the additive and combined effects of disclosing exploration and exploitation information on cost of equity capital. We build on theory that presupposes that the information disclosed by a firm about its innovation activities will reduce information risk of investors. However, we contend that disclosure of exploration and exploitation innovation activities could convey potentially paradoxical expectations about a firm's future value. Based on longitudinal data of the UK FTSE 350 firms from 2011–2016, we show that firms tend to disclose more information related to exploration than exploitation. However, the bulk of market benefits are driven by exploitation rather than exploration disclosures—except for R&D-active firms that are rewarded for exploration disclosure. We also find that the combined disclosure is negatively associated with cost of equity capital, with the sub-population of R&D-active firms particularly accruing synergies from combined disclosure of both exploration and exploitation. These findings suggest that the market differentiates between exploration and exploitation information in addressing information risk, more so than previously assumed. We discuss implications for information-type-dependency in information-risk theory, the outward projection of internal paradoxes, capital market valuations of disclosure by R&D-active firms, opportunity-seeking by large publicly listed corporations, and policy implications.

Original languageEnglish
Article number104396
Number of pages17
JournalResearch Policy
Issue number1
Publication statusPublished - Jan 2022


  • Ambidexterity
  • Content analysis
  • Cost of capital
  • Disclosure
  • Exploitation
  • Exploration
  • Information risk
  • Innovation
  • Paradox
  • R&D

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