R&D Investment and the Financial Performance of Technological Firms

20 Pages Posted: 16 Aug 2005

See all articles by Jean-Sebastien Lantz

Jean-Sebastien Lantz

Ecole Nationale Superieure des Telecommunications

Jean-Michel Sahut

IDRAC Business School

Abstract

The growth of technological firms is based on the exploitation of innovative products and services thus forcing them to strongly invest in research and development (R&D). If the R&D expenditures announce the strategic positioning of firms, they can also significantly decrease the financial performances in terms of net income, return and risk.

With the IAS 38 standard, the R&D expenditures can be accounted as expenses or assets. This choice has an impact on financial performances but this effect is difficult to forecast because these expenditures increase the information asymmetry between shareholders and managers. We demonstrate that it is preferable to capitalize the R&D expenditures if the firm is able to draw an immediate commercial exploitation from them or to adopt a swarming strategy of innovative projects (spin-off) as the benefits arise in the future.

Keywords: R&D, Intangible asset, Capitalization, Value, Beta, Return, Performance, Risk, Accounting standard, IAS 38, Swarming, Spin-off

JEL Classification: G32, G14, L19, O33

Suggested Citation

Lantz, Jean-Sebastien and Sahut, Jean-Michel, R&D Investment and the Financial Performance of Technological Firms. International Journal of Business, Vol. 10, No. 3, 2005. Available at SSRN: https://ssrn.com/abstract=778425

Jean-Sebastien Lantz

Ecole Nationale Superieure des Telecommunications ( email )

46, rue Barrault
Paris Cedex 13, F-75634
France

Jean-Michel Sahut (Contact Author)

IDRAC Business School

47 rue du Sergent Michel Berthet
Lyon, 69009
France

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