Accounting Comparability and Corporate Innovative Efficiency

59 Pages Posted: 18 Jul 2016 Last revised: 3 Sep 2019

See all articles by Justin Chircop

Justin Chircop

Lancaster University Management School

Daniel W. Collins

University of Iowa - Department of Accounting

Lars Helge Hass

Lancaster University - Management School; University of Iowa - Henry B. Tippie College of Business

Nhat (Nate) Q. Nguyen

Colorado State University

Date Written: August 31, 2019

Abstract

We predict that a firm’s greater accounting comparability with its industry peers facilitates its learning from those peer firms’ research and development (R&D) investments, allowing that firm to have greater innovative efficiency. We estimate accounting comparability using pro-forma capitalized R&D earnings that link lagged R&D expenditures to future profitability employing the Almon (1965) distributed lag model. We find that greater accounting comparability leads to enhanced ability to predict future cash flows generated by R&D investments of peer firms. In the cross-section, we observe the relation between accounting comparability and innovative efficiency is stronger if peer firms exhibit higher accounting (accrual) quality and are themselves successful innovators. In sum, this study shows that a shared qualitative characteristic of accounting, namely accounting comparability, is positively associated with innovative efficiency.

Keywords: accounting comparability, innovative efficiency, product similarity, product market competition

JEL Classification: G12, G14, O32

Suggested Citation

Chircop, Justin and Collins, Daniel W. and Hass, Lars Helge and Nguyen, Nhat (Nate) Q., Accounting Comparability and Corporate Innovative Efficiency (August 31, 2019). Available at SSRN: https://ssrn.com/abstract=2810448 or http://dx.doi.org/10.2139/ssrn.2810448

Justin Chircop (Contact Author)

Lancaster University Management School ( email )

Lancaster University
Lancaster, Lancashire LA1 4YX
United Kingdom

Daniel W. Collins

University of Iowa - Department of Accounting ( email )

108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
319-335-0912 (Phone)
319-335-1956 (Fax)

Lars Helge Hass

Lancaster University - Management School ( email )

Department of Accounting and Finance
Lancaster, LA1 4YX
United Kingdom

University of Iowa - Henry B. Tippie College of Business ( email )

Dept. of Accounting
Iowa City, IA 52242-1000
United States

Nhat (Nate) Q. Nguyen

Colorado State University ( email )

258 Rockwell Hall
College of Business
Fort Collins, CO 80523
United States
970-491-0512 (Phone)

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