Capitalization of In-Process Research and Development Under SFAS 141R and Information Asymmetry
Posted: 20 Jun 2019
Date Written: January 30, 2019
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: Suggested Citation