Capitalization of In-Process Research and Development Under SFAS 141R and Information Asymmetry

Posted: 20 Jun 2019

See all articles by Hyeesoo Hyun Chung

Hyeesoo Hyun Chung

California State University, Long Beach; Arizona State University (ASU) - School of Global Management and Leadership

Stephen A. Hillegeist

Arizona State University (ASU) - W. P. Carey School of Business, School of Accountancy

You-il (Chris) Park

University of Hawaii at Manoa - School of Accountancy

Jinyoung P. Wynn

Louisiana Tech University - School of Professional Accountancy

Multiple version iconThere are 2 versions of this paper

Date Written: January 30, 2019

Abstract

This study examines the effect of capitalizing acquired in-process research and development (IPR&D) on information asymmetry under Statement of Financial Accounting Standard No. 141 (R). SFAS 141R requires acquirers to fully recognize IPR&D at fair value as an indefinite-lived intangible asset until completion or discontinuation of the project. Prior research suggests IPR&D capitalization will result in an improvement in the information environment. In contrast, we find no evidence that capitalizing IPR&D improved the information environment for IPR&D acquirers. Instead, most of our results suggest no significant change in information asymmetry for IPR&D acquirers during the post-SFAS 141R period, relative to the concurrent changes for non-IPR&D acquirers. In cases in which the results suggest a statistically significant increase, the economic magnitudes are relatively small. In addition, we find no evidence that IPR&D acquirers engaged in increased classification shifting between IPR&D and goodwill during the post-SFAS 141R period, as critics of capitalization had feared.

Keywords: SFAS 141R, capitalization vs. expensing, information asymmetry, in-process research and development, goodwill

JEL Classification: M4, O3, G14

Suggested Citation

Chung, Hyeesoo Hyun and Hillegeist, Stephen A. and Park, You-il (Chris) and Wynn, Jinyoung Park, Capitalization of In-Process Research and Development Under SFAS 141R and Information Asymmetry (January 30, 2019). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3403737

Hyeesoo Hyun Chung

California State University, Long Beach ( email )

1250 Bellflower Blvd.
Long Beach, CA 90840
United States

Arizona State University (ASU) - School of Global Management and Leadership ( email )

P.O. Box 37100
Phoenix, AZ 85069
United States

Stephen A. Hillegeist (Contact Author)

Arizona State University (ASU) - W. P. Carey School of Business, School of Accountancy ( email )

Tempe, AZ 85287-3706
United States
480-965-6614 (Phone)

You-il (Chris) Park

University of Hawaii at Manoa - School of Accountancy ( email )

2404 Maile Way
Honolulu, HI 96822
United States
8089567028 (Phone)

HOME PAGE: http://shidler.hawaii.edu/chris-park

Jinyoung Park Wynn

Louisiana Tech University - School of Professional Accountancy ( email )

Ruston, LA 71272
United States
(318) 257-3948 (Phone)
(318) 257-4253 (Fax)

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