The relation between R&D intensity and future market returns: Does expensing versus capitalization matter?
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Date
2007-07-01
Source Title
Review of Quantitative Finance and Accounting
Publisher
Springer Science and Business Media LLC
Melbourne Authors
Affiliation
Finance
Document Type
Journal Article
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Chan, H. W. H., Faff, R. W., Gharghori, P. & Ho, Y. K. (2007). The relation between R&D intensity and future market returns: Does expensing versus capitalization matter?. Review of Quantitative Finance and Accounting, 29 (1), pp.25-51. https://doi.org/10.1007/s11156-007-0023-1.
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Abstract
The Australian accounting environment provides an ideal setting for examining the impact of different accounting treatments of firms’ R&D activities on their subsequent returns. Unlike US firms, which can only expense R&D, Australian GAAP permits firms to either expense or capitalize their R&D expenditure. We examine separately the market impact of the R&D intensity of all R&D active firms, ‘capitalizers’ and ‘expensers’. Our results suggest that firms with higher R&D intensity perform better, regardless of the accounting method used, consistent with the resource-based view of the firm. We also find some evidence that firms which expense R&D outperform those which capitalize R&D after controlling for R&D intensity.
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Accounting, Auditing and Accountability