Accounting for R&D on the income statement? Evidence on non-discretionary vs. discretionary R&D capitalization under IFRS in Germany.
Journal
Journal of International Accounting Auditing and Taxation
Type
journal article
Date Issued
2022
Author(s)
Abstract (De)
This paper compares the informativeness of discretionary research and development (R&D) capitalization under IAS 38 with non-discretionary “as-if” R&D capitalization. While prior research consistently demonstrated capital market benefits of “as-if” capitalization, prior evidence for reported R&D capitalization are less favorable due to earnings management concerns. Because “as-if” studies are based on adjusted data assuming R&D capitalization, the resulting numbers are free from such concerns and may be more informative. We find that reported capitalized R&D is not associated with lower information asymmetry but positively associated with forecast errors. While market values are not associated with reported capitalized R&D, they are strongly associated with “as-if” capitalized R&D. Also, actual capitalization of development expenditures under IAS 38 is only as value relevant as when expensing all R&D. Our results are consistent with the notion that market participants undo actual capitalization and use the information on expensed R&D to develop their own estimates of R&D value. Our findings lend support to the proposition by Barker and Penman (2020) that deficiencies of the balance sheet that result from the uncertainty inherent in expenditures such as R&D, should be supplemented by more detailed information on the nature of the related expenses in the income statement
Language
English
HSG Classification
contribution to scientific community
Refereed
Yes
Volume
46
Start page
1
End page
20
Subject(s)
Eprints ID
269613