Changes in the Value Relevance of R&D Expenses after IFRS Adoption

Advances in Accounting, 2016, Forthcoming

48 Pages Posted: 12 Sep 2008 Last revised: 2 Oct 2016

See all articles by James Jianxin Gong

James Jianxin Gong

California State University at Fullerton

I-Ling Wang

University of Illinois at Urbana-Champaign - Department of Accountancy

Date Written: May 23, 2016

Abstract

We investigate whether the nature of differences between national GAAP and IFRS is associated with differential changes in the value relevance of R&D expenses after the adoption of IFRS across countries. Using a difference-in-differences study on a sample of public companies in nine countries that covers pre-IFRS and post-IFRS periods during 1997-2012, we find that the value relevance of R&D expenses declines after IFRS adoption in countries that previously mandated immediate expensing or allowed optional capitalization of R&D costs. On the contrary, there is no change in the value relevance of R&D expenses for countries that switched from the mandatory capitalization rule to IFRS. We also investigate the moderating effects of national institutions on the changes in the value relevance of R&D expenses after IFRS adoption. We find that in countries with stronger investor protection, the changes in the value relevance of R&D expenses are larger. In addition, changes in the value relevance of R&D expenses are smaller for countries whose national culture is characterized by higher uncertainty avoidance. Our findings highlight the importance of both accounting standards and national institutions in explaining the changes in the value relevance of accounting information after IFRS adoption.

Keywords: International Accounting; Accounting Standards; Value Relevance; R&D; Institutional Factors

JEL Classification: M40

Suggested Citation

Gong, Jianxin and Wang, I-Ling, Changes in the Value Relevance of R&D Expenses after IFRS Adoption (May 23, 2016). Advances in Accounting, 2016, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1267249 or http://dx.doi.org/10.2139/ssrn.1267249

Jianxin Gong (Contact Author)

California State University at Fullerton ( email )

Department of Accounting
Mihaylo College of Business and Economics
Fullerton, CA 92831
United States
(657)278-3897 (Phone)
(657)278-4518 (Fax)

I-Ling Wang

University of Illinois at Urbana-Champaign - Department of Accountancy ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

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