The Value-Relevance of Alternative Accounting Treatments of Software Development Costs
42 Pages Posted: 27 Oct 1999
Date Written: September 10, 1999
Abstract
This paper compares the value-relevance of current accounting practice for software development costs to three alternative accounting treatments: full expensing, full capitalization with uniform amortization, and full capitalization with firm-specific amortization. Test results indicate that full capitalization with uniform amortization is the only alternative accounting treatment that explains more of the variation in observed stock prices than current accounting practice. Overall, the results suggest that market participants adjust reported accounting information to reflect full capitalization of software development costs, but then apply uniform amortization to all firms rather than using reported firm-specific amortization rates.
JEL Classification: M41, M44, G14
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
The Stock Market Valuation of Research and Development Expenditures
By Louis K.c. Chan, Josef Lakonishok, ...
-
The Stock Market Valuation of Research and Development Expenditures
By Louis K.c. Chan, Josef Lakonishok, ...
-
The Risk and Return from Factors
By Louis K.c. Chan, J. Karaceski, ...
-
The R&D Master File Documentation
By Bronwyn H. Hall, Clint Cummins, ...
-
The Level and Persistence of Growth Rates
By Louis K.c. Chan, Jason J. Karceski, ...
-
R&D Accounting and the Tradeoff between Relevance and Objectivity
By Paul M. Healy, Stewart C. Myers, ...
-
R&D Reporting Biases and Their Consequences
By Baruch Lev, Bharat Sarath, ...
-
R&D Reporting Biases and Their Consequences
By Baruch Lev, Bharat Sarath, ...
-
Excess Returns to R&D-Intensive Firms
By Dennis J. Chambers, Ross Jennings, ...
