Proprietary Information Leakage and Accounting Information Transparency: The Moderating Role of Intellectual Property Rights Protection

Objective
Accounting information transparency-one of the fundamental pillars of corporate governance-plays a crucial role in enhancing investor confidence, improving capital market efficiency, and strengthening the overall economic system. Transparency in financial reporting refers to the provision of reliable, comprehensive, timely, and understandable information that allows stakeholders to accurately assess a firm’s performance and risks, thereby supporting informed decision-making. In recent years, the expansion of economic activities and growing global competition have intensified the challenge of confidential and proprietary information leakage, particularly in the area of research and development (R&D). Such leakage can undermine firms’ competitive advantage, cause the loss of strategic opportunities, and reduce managers’ motivation for voluntary and transparent disclosure. This study examines the impact of R&D information leakage on accounting transparency and explores whether intellectual property (IP) protection moderates this relationship. The issue is especially relevant in the context of the Iranian economy, where international sanctions, weak enforcement mechanisms, and institutional inefficiencies limit the protection of intellectual property rights. The research draws on transaction cost theory, agency theory, and conditional conservatism. From a transaction cost perspective, the leakage of confidential information represents an additional cost that may lead managers to reduce disclosure and transparency. Similarly, agency theory suggests that weak corporate governance exacerbates conflicts of interest between managers and shareholders, further diminishing transparency in financial reporting.
Methods
The study analyzed data from 107 firms listed on the Tehran Stock Exchange between 2012 and 2022. Firms were selected based on criteria such as continuous operations, fiscal years ending in March, and exclusion from investment or financial intermediation industries. Data were collected from audited financial statements and the World Intellectual Property Organization (WIPO) indicators of intellectual property protection. Accounting information transparency was measured using a composite index based on aggressive earnings management and earnings smoothing. R&D information leakage was estimated through the Cobb–Douglas production function. The Ginarte-Park index was used as a proxy for intellectual property protection. Control variables included return on assets, financial leverage, asset growth, board independence, firm size, and industry concentration. Data analysis was conducted using linear and multivariate regression models in EViews 11.
Results
The results show that R&D information leakage has a significant negative effect on financial reporting transparency. The estimated coefficients indicate that transparency declines substantially as information leakage increases. This finding aligns with prior international research, which suggests that firms tend to reduce disclosure when the risk of proprietary knowledge transfer to competitors is high. However, the moderating role of intellectual property protection was not supported. Despite the existence of IP protection laws, weak enforcement and monitoring mechanisms in Iran appear to limit their effectiveness in enhancing disclosure transparency.
Conclusion
The findings highlight that legal frameworks alone are insufficient-effective enforcement and institutional efficiency are essential to mitigating the adverse effects of information leakage. R&D information leakage poses a serious threat to accounting transparency among Iranian firms. Without strong IP protections, both managers and investors face heightened risks due to lower-quality financial information. Therefore, strengthening regulatory institutions, improving enforcement mechanisms, and promoting a strong culture of corporate governance are critical policy priorities. Firms should also adopt internal strategies such as improving control systems and using advanced data protection technologies to prevent confidential information leakage. Future research could examine proprietary information leakage in other areas such as production, marketing, and information technology, while considering broader institutional and environmental factors. Overall, this study provides empirical evidence that R&D information leakage undermines not only firm competitiveness but also the quality of financial reporting. Ignoring this issue could erode investor trust and weaken capital market integrity.