Accounting for Intangible Assets—Insights from Meta-Analysis of R&D Research

Abstract

The knowledge- and Internet-based economy demands a re-examination of the accounting treatment for intangibles and a thorough understanding of the empirical evidence on this topic. We review the literature on research and development (R&D), a specific internally developed intangible asset, using meta-analysis techniques that allow us to highlight the areas of consensus and disagreement in quantitative empirical results. The literature we review addresses four main research questions on (1) the determinants of the decision to capitalize R&D, (2) stock market-based outcomes of capitalizing R&D, (3) firm-based outcomes related to expensing R&D, and (4) stock market-based outcomes of expensing R&D. We find higher value relevance of capitalized compared with expensed R&D. There is, however, little robust evidence on the determinants of the capitalization decision and the characteristics of capitalizers. We conclude by highlighting future research that can allow accounting academics to contribute to standard setting.

Keywords: Research and development; Intangible assets; Capitalization; Meta-analysis

JEL Classification: M4