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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27597
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| Title: | Capitalization of R&D and the Informativeness of Stock Prices |
| Authors: | Oswald, Dennis R.
Zarowin, Paul |
| Keywords: | Research & Development
Informativeness
Capitalization |
| Issue Date: | Aug-2007 |
| Series/Report no.: | Paul Zarowin-08 |
| Abstract: | This paper presents both a new approach to studying the consequences of
accounting choice and a unique sample to examine the effects of
accounting choice in the R&D context. We investigate the effect of
firms’ decision to capitalize R&D expenditures on the amount
of information about future earnings reflected in current stock returns,
as captured by the association between current-year returns and future
earnings (FERC). We use a sample of U.K. firms, which includes both
R&D capitalizers and expensers. An important feature of our tests is
our use of a two equation system to control for the endogeneity of the
accounting choice (i.e., self selection). Proponents of capitalization
claim that it enables management to better communicate information about
the success of projects and their probable future benefits. Consistent
with this, we find that capitalization is associated with higher FERC
than expensing. |
| URI: | http://hdl.handle.net/2451/27597 |
| Appears in Collections: | Accounting Working Papers
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