The capitalization, amortization, and value-relevance of R&D

Research output: Contribution to journalArticlepeer-review


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 languageEnglish (US)
Pages (from-to)107-138
Number of pages32
JournalJournal of Accounting and Economics
Issue number1
StatePublished - Feb 1996


  • Capitalization
  • Intangibles
  • Market valuation
  • Mispricing
  • R&D

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


Dive into the research topics of 'The capitalization, amortization, and value-relevance of R&D'. Together they form a unique fingerprint.

Cite this