Abstract
GAAP mandates the full expensing of R&D in financial statements, presumably because of concerns with the reliability, objectivity, and value-relevance of R&D capitalization. To address these concerns, we estimate the R&D capital of a large sample of public companies and find these estimates to be statistically reliable and economically meaningful. We then adjust the reported earnings and book values of sample firms for the R&D capitalization and find that such adjustments are value-relevant to investors. Finally, we document a significant intertemporal association between firms' R&D capital and subsequent stock returns, suggesting either a systematic mispricing of the shares of R&D-intensive companies, or a compensation for an extra-market risk factor associated with R&D.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 107-138 |
| Number of pages | 32 |
| Journal | Journal of Accounting and Economics |
| Volume | 21 |
| Issue number | 1 |
| DOIs | |
| State | Published - Feb 1996 |
Keywords
- Capitalization
- Intangibles
- Market valuation
- Mispricing
- R&D
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics