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China adopted its new Accounting Standards for Business Enterprises No. 6 in 2007, which substantially converges with the International Financial Reporting Standards. It stipulates that firms operating in China shall capitalize development costs provided specific criteria have been met. This paper aims to examine the effects of the new accounting policies of R&D on the value-relevance and stock performance of 36,299 Chinese firms-years from 2007 to 2020.

A comprehensive multi-stage analysis was conducted. Multiple linear regressions were performed on the pooled cross-sectional time-series total R&D, capitalized expenditures, expensed costs and other key financial factors to test for the effects of R&D on the stock prices, contemporaneous stock returns and subsequent stock returns for the full sample, capitalizer sample and expenser sample, respectively.

First, majority of Chinese firms (about 80% of those reported) elect to adopt expensing R&D approach, while about 20% deploys capitalization treatment. Second, key attributes such as size, profitability, leverage and R&D intensity are highly associated with capitalization propensity. Third, current capitalization affects the contemporaneous stock prices and stock returns (priced-in) with yearly volatility. Finally, intertemporal association exists between firms’ expensing costs and subsequent returns due to a delayed reaction.

As the world largest emerging economy, the results show that research and development information adds value, and capitalizers outperforms expensers in the area of stock performance. This strategy works irrespectively of economic development stage or capital market maturity. The findings call for more capitalization.

The paper examines whether, along with the financial performance, the disclosure of research and development (R&D) expenses, patent portfolios, patent citations and innovation activities affect the market capitalization of Russian companies.

The paper opted for a set of techniques including bag-of-words (BoW) to retrieve additional innovation-related data from companies' annual reports, self-organizing maps (SOM) to perform visual exploratory analysis and panel data regression (PDR) to conduct confirmatory analysis using data on 74 Russian publicly traded companies for the period 2013–2019.

The paper observes that the disclosure of nonfinancial data on R&D, patents and primarily product and marketing innovations positively affects the market capitalization of the largest Russian companies, which are mainly focused on energy, raw materials and utilities and are operating on international markets. The study suggests that these companies are financially well-resourced to innovate at risk and thus to provide positive signals to stakeholders and external agents.

Our findings are important to management, investors, financial analysts, regulators and various agencies providing guidance on corporate governance and sustainability reporting. However, the authors acknowledge that the research results may lack generalizability due to the sample covering a single national context. Researchers are encouraged to test the proposed approach further on other countries' data by using the compiled lexicons.

The study aims to expand the domains of signaling theory and market valuation by providing new insights into the impact that companies' reporting on R&D, patents and innovation activities has on market capitalization. New nonfinancial factors that previous research does not investigate – innovation disclosure indicators (IDI) – are tested.

The purpose of this paper is to investigate how different research and development (R&D) accounting choice (capitalization and expensing) affects the value of the listed companies under the new Chinese Accounting Standards (CAS) background. According to new CAS, R&D expenditure can either be expensed as incurred as a whole or partly capitalized and partly expensed from 2007.

The paper takes the form of an empirical study using a hand-collected sample of 3,664 observations from Chinese listed companies over 2007–2012 timeframe.

It is found that different methods of reporting R&D investments do affect the value of listed firms in China. Specifically, the firms that chose to capitalize their R&D investments have higher stock price and return. On the contrary, the companies that select to expense their R&D expenditures have lower stock price and return. It is also found that capitalized R&D investments are positively connected to stock price, while expensed R&D expenditures are negatively related to stock prices.

This paper researches and finds the value relevance of R&D capitalization and expensing from the accounting report method itself. This explores some interesting research questions. Does choice of accounting method for R&D expenditure affect firm valuation? Do different methods of reporting R&D investments transfer different signal to investors? Does expensed R&D carry a negative signal to investors? So it can expand the existing R&D area of research.

This paper can provide empirical evidence and decision support for corporate managers, R&D policy makers and investors in a non-mandatory disclosure market of R&D expenditure. Because different R&D accounting choice has different market reactions, managers can choose a favorable method of reporting R&D investments to raise their firm’s stock price. Policy makers should standardize accounting treatment of R&D expenditure, strengthen the disclosure of R&D information and develop a detailed, workable R&D capitalization accounting policies and procedures. Investors can make the right judgment and decision on business innovation capability and future development only by getting more R&D investment information.

Different from present studies focusing on the value relevance of R&D investment, this paper explores an interesting topic showing how different methods of reporting R&D investment in China affect the value of the firms.

Recent studies in the accounting literature have investigated the economic consequences of R&D capitalization. Discretionary R&D capitalization for target beating can be characterized as a firm signaling private information on its future economic benefits or as opportunistic earnings management. R&D capitalization also has an impact on a firm’s marginal costs and product market competition. The purpose of this paper is to address how firms choose R&D levels for the purpose of meeting or beating their earnings targets and how this influences sequential product market competition.

The authors study this issue in a stylized game-theoretic model where R&D choices of a firm are not only strategically made but also used to convey proprietary information to its rival. The model provides a rationale for a firm distorting its R&D level to earn more profits and meet its earnings target.

The equilibrium result indicates that before the realization of common cost shock, a firm can influence the output of its accounting system (i.e. meeting an earnings target) through adjusting its R&D choices. This firm will overinvest in R&D, and this will give an opportunity to create some reserves to be used later to earn a higher profit and reach the earnings target.

This paper contributes to the research on real earnings management in terms of how R&D capitalization affects a firm’s R&D choices by influencing the output of its accounting system through adjusting its R&D choices and the strategic impact of those choices.

This study aims to investigate how the intangible intensive nature of firms affects the value relevance of earnings and the book value of equity between profit- and loss-reporting firms. The study also examines how firms’ intangible intensity affects the value relevance of R&D outlays between profit- and loss-reporting firms.

An empirical analysis based on Ohlson’s (1995) framework is used. A total of 54,421 firm-year observations of Indian listed firms from financial years 1992–2016 constitute the study sample.

The findings suggest that the difference in the value relevance of earnings and the book value of equity between profit- and loss-reporting firms is more significant in non-intangible intensive firms than in intangible firms. Specifically, earnings are more value relevant in profit-reporting and non-intangible intensive firms, whereas book value of equity is more value relevant in loss-reporting and intangible intensive firms. The results also suggest that the difference in the incremental value relevance of R&D information between profit- and loss-making firms is higher in intangible intensive firms than in non-intangible intensive firms.

The findings of this study can help managers, standard-setters and investors make effective decisions.

This study offers insights into the impact of intangible intensity on the value relevance of aggregated and disaggregated accounting information between profit- and loss-making firms in institutional settings where capitalization of R&D expenditures is allowed.

This paper aims to examine the impact of the intangible intensity of the firm on the relevance of research and development (R&D) information to determine equity values in India. Additionally, the study compares the association of input information on R&D investment (the reported R&D cost) and output information on R&D investment (patent count) with equity values. Further, the study also examines the operational nature of the firm and patent count, which is the better proxy to measure the intangible intensity of the firm.

The authors compared the explanatory power of R&D information between intangible and non-intangible intensive firms. To estimate the value relevance of R&D information, the authors followed the statistical model based on the theoretical framework of the residual income model.

The results indicate that there is a significant moderating impact of the intangible intensity of the firm on the relevance of R&D information to determine equity values in India over the 25 years study period (from 1991 to 2016). Further, in India, the study finds that the input information of R&D outlay is more relevant than output information on R&D outlay to determine equity values, irrespective of the proxy measure of intangible intensity. Moreover, the study finds that the operational nature of the firm is a better proxy of the intangible intensity of the firm compared to patent counts.

In this study, pooled cross-sectional data were used for analysis. In the future, longitudinal and panel data can be used for more insightful results.

The findings of the study provide direction to investors and creditors to find the intrinsic value of the investments in internally developed intangible assets, which will reduce the asymmetry between the market value and accounting value of equity.

The paper offers insights into the impact of intangible intensity on the relevance quality of R&D information in an emerging country.

Prior research shows that religiosity affects the degree of managers' risk aversion. As a result, religious firms are less likely to invest in R&D activities. Moreover, US GAAP treats these investments as expenses. For this reason, religious firms have fewer expenses in their earnings and are less likely to be in financial distress.

Data are collected from Worldscope and the Churches and Church Membership files of the American Religion Data Archive website from 1985 to 2018. With 18,199 observations in US context, the authors used the marginal effect to test the mediating effect of R&D accounting treatment.

The authors find that the marginal effect of religiosity on financial distress with US GAAP is higher than the marginal effect of religiosity on financial distress with capitalization of R&D costs, which means that accounting treatment can explain the relation between religiosity and financial distress in the US context.

The authors used linear interpolation and linear extrapolation data to be able to conduct this research over a period of 1985–2018. For future researches, the authors propose to test other factors which can explain the relationship between religiosity and financial distress based on the ethics element.

These results should be of interest to regulators because treating R&D activities as expenses can destroy the accounting performance of firms that prefer investing in risky projects. This favoritism prevents the comparison between two firms in the same industry with different risk-taking behaviors. This problem is more prevalent if the authors have two firms with different ratios of religiosity. This paper suffers from a major limitation related to data availability.

This may be the first study that investigates why religious firms are less likely to be in financial distress. This paper notes that religious firms are less likely to be in financial distress because their conservative behavior towards R&D activities coincides with the conservative R&D accounting treatment. In fact, the mismatch between expenses and revenues from R&D activities can cause financial distress.

The knowledge- and Internet-based economy demands a reexamination of the accounting treatment for intangibles and a thorough understanding of the empirical evidence on this topic.

The study reviews the literature on research and development (R&D), a specific internally developed intangible asset, using meta-analysis techniques that allow to highlight the areas of consensus and disagreement in quantitative empirical results. The literature the authors review addresses four main research questions on (1) the determinants of the decision to capitalize R&D, (2) stock market-based outcomes of capitalizing R&D, (3) firm-based outcomes related to expensing R&D and (4) stock market-based outcomes of expensing R&D.

The authors find higher value relevance of capitalized compared with expensed R&D. There is, however, little robust evidence on the determinants of the capitalization decision and the characteristics of capitalizers.

The authors conclude by highlighting future research that can allow accounting academics to contribute to standard setting.

The purpose of this research is to look at the effects of research and development expenditures (R&D) on value and risks of publicly traded companies by studying returns on stock exchanges of R&D-intensive economies (Republic of Korea, Finland and Israel).

Empirical tests of multifactor asset pricing models were applied to demonstrate that R&D intensity could be considered as a pricing factor and affect investors’ risk premiums on those markets. To discover the reasons behind the asset pricing R&D anomaly, this study investigated the nature of R&D risk further by looking into the interactions of R&D and currency risks.

This study discovered that investors in stock markets of R&D-intensive countries should require a positive equity risk premium. However, the reduction of R&D intensity may increase firms’ risks and firms with higher R&D-intensity are less exposed to currency risks in R&D-intensive economies.

Many researchers have investigated the relationship between a firm’s R&D and stock returns. But nearly all of them focus on the US Stock Market and attempt to determine the reasons for R&D’s impact on firms’ risks and market value. Meanwhile, the role of R&D and related risks for investors could be even more prominent for stock markets in R&D-intensive countries. To bridge this gap, this research studied stock returns on exchanges of three developed countries where the ratio of gross domestic expenditure on R&D (GERD) to GDP is among the highest worldwide. In this study, the methodology of asset pricing empirical studies was adopted and it was further developed to analyze the causes of R&D risks. The new methodology was applied to discover relationship between R&D intensity and currency risk exposure. The interesting findings could be used for development of firms’ corporate strategies in those countries and for elaboration of policy decisions.

The purpose of this paper is to assess the financial disclosure vis‐á‐vis economic reality of research and development (R&D) expensed by Australian firms under the pre‐2005 Australian generally accepted accounting principles (A‐GAAP) regime via the lens of market‐to‐book.

The authors estimated firms' R&D profit rate, measured R&D revenue intensity and modelled the impacts of these and related economic factors, via economic and financial disclosure channels, on market‐to‐book using data for 1988‐2004.

R&D, on average, was profit neutral and had undetectable impacts on market‐to‐book whether via equity valuation or financial disclosure.

Market‐to‐book's information content is best viewed as conditional on the reference disclosure regime. Australian firms' typically at best minimal R&D profitability is an international anomaly. Data limitations in terms of the generating process and availability mean that R&D's impact on market‐to‐book via financial reporting is not definitively determined.

Restrictive rules on the capitalization of intangible asset‐related expenditures under A‐GAAP apparently did not adversely impact market‐to‐book's economic information. AIFRS's more permissive rule risks compromising market‐to‐book's reliability in such a role.

For Australia, the paper is anticipated to be the first to estimate the profit rate of R&D, measure the intensity of R&D, and model R&D's influence on the market‐to‐book ratio. It develops a framework for the economic and financial reporting impacts of investments on a key indicator of firms' financial standing and contributes to the debate on identifiable intangibles' disclosure.