The Negative Impact of R&D Capitalization: A Value Relevance Approach

Posted: 18 Sep 2017

See all articles by Anne Jeny

Anne Jeny

ESSEC Business School; ESSEC Business School - Department of Accounting and Management Control

Thomas Jeanjean

ESSEC Business School - Department of Accounting and Management Control

Date Written: 2006

Abstract

Accounting for R&D costs is an open issue. SFAS N82 mandates that all R&D costs must be immediately expensed. IAS 38 requires capitalization of R&D costs if they meet certain criteria. Recent research papers show the value relevance of capitalized R&D. We test the value relevance of R&D reporting in a sample of 197 French firms between 1993 and 2002. The French context provides an interesting field for R&D value relevance studies because both accounting treatments of R&D costs (expensing and capitalization) are allowed. Unlike previous studies, we find that capitalized R&D is negatively associated with stock prices and returns. This negative coefficient on capitalized R&D implies that investors are concerned with and react negatively to capitalization of R&D. We also find that the firms choosing to capitalize (successful) R&D are smaller, more highly leveraged, less profitable and have less growth opportunities. Taking into account these characteristics, our robustness checks confirm that capitalized R&D is not associated with higher prices and is related to lower returns.

Keywords: R&D, Capitalization, Value Relevance

Suggested Citation

Jeny, Anne and Jeanjean, Thomas, The Negative Impact of R&D Capitalization: A Value Relevance Approach (2006). European Accounting Review Vol. 15, No. 1, 2006. Available at SSRN: https://ssrn.com/abstract=3037381

Anne Jeny (Contact Author)

ESSEC Business School ( email )

Av Bernard Hirsch
BP 50105
Cergy-Pontoise, 95021
France

ESSEC Business School - Department of Accounting and Management Control ( email )

Av Bernard Hirsch
BP 50105
Cergy-Pontoise, 95021
France

Thomas Jeanjean

ESSEC Business School - Department of Accounting and Management Control ( email )

Av Bernard Hirsch
Cergy-Pontoise 95021
France

Register to save articles to
your library

Register

Paper statistics

Abstract Views
604
PlumX Metrics