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Article
Publication date: 14 September 2015

Li Sun

– This study aims to investigate whether research and development (R & D) expenditures drive future innovation in the chemical industry.

Abstract

Purpose

This study aims to investigate whether research and development (R & D) expenditures drive future innovation in the chemical industry.

Design/methodology/approach

This study examines the relation between R & D expenditures for the period of 2000-2002 and the innovation effect measured by the Malmquist Productivity Index (MPI) for the period of 2003-2005. Under the MPI, the innovation effect is measured as the “shift” in a firm’s production frontier between two periods (2003-2005).

Findings

Results indicate that there is a significant and positive relation between R & D expenditures and future innovation among chemical firms.

Originality/value

This study should be of interest to financial accounting policy makers, R & D-intensive companies and investors. To policy makers, they may consider the possibility of permitting R & D-intensive companies to recognize R & D expenditures as assets. In other words, R & D-intensive companies can capitalize and amortize their R & D expenditures, as R & D expenditures can bring them future economic benefits. To R & D-intensive companies, the results may encourage them to keep up their R & D activities. Moreover, this study can increase individual investors’ confidence in investing companies with high-level R & D activities in an R & D-intense industry.

Details

International Journal of Law and Management, vol. 57 no. 5
Type: Research Article
ISSN: 1754-243X

Keywords

Article
Publication date: 29 March 2022

Jing Chen and Tianchi Wang

This study aims to investigate the relationship between government subsidies, R&D expenditures and overcapacity, and to explore the heterogeneity effects in different time…

Abstract

Purpose

This study aims to investigate the relationship between government subsidies, R&D expenditures and overcapacity, and to explore the heterogeneity effects in different time periods and different types of companies. It can provide theoretical and practical guidance for the development of the photovoltaic industry.

Design/methodology/approach

This paper constructs a mediation model to explore the impact of government subsidies on overcapacity and on R&D expenditures, and to propose an indirect way to disentangle the impact of government subsidies on the creation of overcapacity from the positive aspect of increased R&D expenditures. A total of 94 listed enterprises in the Chinese photovoltaic industry were selected as the sample over the period 2012–2019.

Findings

There was significant overcapacity in the photovoltaic industry. Government subsidies had a positive effect in promoting overcapacity and R&D expenditures. The influence of government subsidies on excess capacity increased and on R&D expenditures decreased over time. Compared with large enterprises, government subsidies the small enterprises received had a greater positive impact on the overcapacity and a smaller positive impact on R&D expenditure. R&D expenditures restrained the influence of government subsidies on overcapacity, but the suppression effect was limited and decreased over time. The indirect effect in small enterprises was greater than that of large enterprises.

Originality/value

This paper studied government subsidies, R&D expenditure and overcapacity in the same framework and used bias-corrected bootstrapping to explore the path of “government subsidies–R&D expenditures–overcapacity”. The heterogeneous effects in different periods and different types of firms are discussed.

Details

Chinese Management Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1750-614X

Keywords

Article
Publication date: 7 January 2022

Ahmed Hassanein, Jamal Ali Al-Khasawneh and Hany Elzahar

Corporate managers spend on research and development (R&D) for reasons of growth and survival. However, they may be less willing to invest in R&D because of its long-term…

Abstract

Purpose

Corporate managers spend on research and development (R&D) for reasons of growth and survival. However, they may be less willing to invest in R&D because of its long-term horizon, high failure rate and uncertain outcomes. This study aims to explore the extent to which managerial ownership influences R&D expenditure decisions.

Design/methodology/approach

Apart from the linear regression models, this study uses a semi-parametric quantile regression analysis for a sample of German non-financial firms throughout 2009–2018.

Findings

This study finds a nonmonotonic sensitivity of R&D spending to the level of managerial ownership over various quantiles of R&D distribution. That is, managerial ownership increases the expenditure on R&D at low R&D intensity firms. However, it decreases the expenditure on R&D at high R&D intensity firms. These results suggest the presence of a maximum level of R&D expenditure, after which owner-managers would be unwilling to spend on R&D.

Practical implications

The results confirm the importance of corporate ownership structure for firm R&D and innovation activities. It provides an implication for corporate policymakers to reform the corporate ownership structures to encourage corporate managers and owners to invest in R&D projects.

Originality/value

This study offers two distinct contributions study. First, it provides the first German shred of evidence on the nonlinear relationship between managerial ownership and R&D expenditure decisions by distinguishing between high and low R&D intensity firms. Second, unlike prior research, it uses a semi-parametric quantile regression analysis. This method is more efficient than least-squares estimators and produces robust estimators to heteroscedasticity of the residuals.

Details

Journal of Financial Reporting and Accounting, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1985-2517

Keywords

Article
Publication date: 2 September 2019

Pooja Kumari and Chandra Sekhar Mishra

Fundamental shifting of the world toward intangible intensive economy raised an apprehension regarding value relevance of internally generated intangible assets. In the…

Abstract

Purpose

Fundamental shifting of the world toward intangible intensive economy raised an apprehension regarding value relevance of internally generated intangible assets. In the previous studies, research and development (R&D) expenditure is recognized as a significant accounting item, which can indicate potential internally generated intangible assets. This study aims to examine whether investors consider nature of intangible intensity of a firm for the evaluation of R&D expenditure to determine equity values in India.

Design/methodology/approach

The authors compared value relevance of capitalized and the expensed portion of R&D expenditure between intangible- and non-intangible-intensive firms. They adopted empirical model grounded on the generalized version of Ohlson’s (1995) model.

Findings

The findings of the study indicate that, in intangible-intensive (non-intangible) firms, the capitalized portion of expenditure is positively (negatively) significant and the expensed portion of R&D expenditure is negatively (positively) significant to explain equity values.

Practical implications

The findings of this study may have potential implication for the discussion on the accounting treatment of internally generated intangible assets based on the nature of intangible intensity of the firm. The study also suggests that while setting standards, standard-setters should consider nature of intangible intensity of the firm, which could disseminate the discrepancy between the market and book value of the equity.

Originality/value

The study provides evidence, how value relevance of R&D reporting is affected by the nature of intangible intensity of a firm.

Details

Journal of Financial Reporting and Accounting, vol. 17 no. 3
Type: Research Article
ISSN: 1985-2517

Keywords

Article
Publication date: 12 February 2018

Tatiana Fedyk and Natalya Khimich

The purpose of this paper is to link valuation of different accounting items to research and development (R&D) investment decisions and investigate how suboptimal R&D

Abstract

Purpose

The purpose of this paper is to link valuation of different accounting items to research and development (R&D) investment decisions and investigate how suboptimal R&D choices during initial public offering (IPO) are linked to future operating and market underperformance.

Design/methodology/approach

For firms with substantial growth opportunities, accounting net income is a poor measure of the firm’s performance (Smith and Watts, 1992). Therefore, other metrics such as R&D intensity are used by investors to evaluate firms’ performance. This leads to a coexistence of two strategies: if earnings are the main value driver, firms tend to underinvest in R&D; and if R&D expenditures are the main value driver, firms tend to overinvest in R&D.

Findings

The authors show that the R&D investment decision varies systematically with cross-sectional characteristics: firms that are at the growth stage, unprofitable or belong to science-driven industries are more likely to overinvest, while firms that are able to avoid losses by decreasing R&D expenditure are more likely to underinvest. Finally, they find that R&D overinvestment leads to future underperformance as evidenced by poor operating return on assets, lower product market share, higher frequency of delisting due to poor performance and negative abnormal stock returns.

Originality/value

While prior literature concentrates on R&D underinvestment as a tool of reporting higher net income, the authors demonstrate the existence of an alternative strategy used by many IPO firms – R&D overinvestment.

Details

Review of Accounting and Finance, vol. 17 no. 1
Type: Research Article
ISSN: 1475-7702

Keywords

Article
Publication date: 29 July 2014

Yanni Wang and Weiguo Fan

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…

1138

Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Research limitations/implications

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.

Practical implications

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.

Originality/value

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.

Details

Chinese Management Studies, vol. 8 no. 3
Type: Research Article
ISSN: 1750-614X

Keywords

Article
Publication date: 25 February 2014

Antje Schimke and Thomas Brenner

This paper aims to examine the short-term structure of the impact of R&D investments on turnover growth, indicating differences between tangible and intangible…

1549

Abstract

Purpose

This paper aims to examine the short-term structure of the impact of R&D investments on turnover growth, indicating differences between tangible and intangible investments. The main questions are whether R&D and capital investments accompany firms' growth in the subsequent periods and how this relationship depends on other characteristics of the firms, such as size and industry. In addition, the authors study the relationship between R&D investments and the autocorrelation dynamics of firm growth.

Design/methodology/approach

The paper uses the European Industrial R&D Investment Scoreboard as data source. This data source includes 1,000 European companies with information on employees, turnover, sector affiliation and details on capital expenditure and R&D expenditure.

Findings

The authors find that R&D activities have, on average, a positive effect on turnover growth, while capital investments show both, positive and negative, relationships with firm growth. The relationship and its temporal structure strongly depend on firm size and industry affiliation as well as whether investments are considered as one-time or permanent activities.

Originality/value

Usually, the impacts of firm characteristics on firm growth are studied without explicitly considering time. Firm characteristics and firm growth are usually measured and examined at the same point in time. In contrast, the study will focus on the short-term structure of the influence of firm characteristics on turnover growth, especially the impact of R&D investments.

Details

Studies in Economics and Finance, vol. 31 no. 1
Type: Research Article
ISSN: 1086-7376

Keywords

Article
Publication date: 20 May 2022

Md. Musfiqur Rahman and Md. Shuvo Howlader

The main purpose of the study is to analyze the impact of research and development (R&D) expenditure on firm performance and firm value in an emerging economy.

Abstract

Purpose

The main purpose of the study is to analyze the impact of research and development (R&D) expenditure on firm performance and firm value in an emerging economy.

Design/methodology/approach

In this study, firm performance is examined by firm financial performance (return on asset (ROA) and return on equity (ROE)) and market performance (Tobin's Q (TBQ)). This study conducted a multivariate analysis on the sampled data using pooled ordinary least square (OLS) regression method. In addition, both the level and lagged models have been used to test hypothesis in order to get the results.

Findings

All the empirical results from different models found significant and positive association of R&D expenditure with firm performance and firm value. The study also validates that all results are robust and free from outliers and multicollinearity issues.

Research limitations/implications

Most of the studies regarding the R&D expenditure and its impact were conducted on developed countries addressing only firm performance. Whereby, this study examined the impact of R&D expenditure on both firm's financial performance and market performance as well as firm value in the context of an emerging economy.

Practical implications

The outcomes of the study will enable the entrepreneurs, managers, investors and policymakers with more confidence to invest in R&D expenditure that will also ensure the organizational sustainability in the long run.

Originality/value

Most of the prior studies regarding the R&D expenditure and its impact were conducted on developed countries addressing only firm performance. Herein, both firm's financial performance and market performance along with firm value have been analyzed in the context of an emerging economy. This paper is unique empirical research study due to different institutional and regulatory setting as well as corporate characteristics. This study strongly advocates the organizational learning theory, agency theory and resource-based view theory of firms' allocation of funds for future growth and innovation.

Details

Journal of Applied Accounting Research, vol. 23 no. 4
Type: Research Article
ISSN: 0967-5426

Keywords

Article
Publication date: 7 January 2014

Juraj Stančík

The main goal of this paper is to create a methodology for estimating public research and development (R&D) expenditures on Information and Communication Technologies

Abstract

Purpose

The main goal of this paper is to create a methodology for estimating public research and development (R&D) expenditures on Information and Communication Technologies (ICT) in the European Union (EU). The study further applies this methodology on business expenditures on R&D (BERD) data across all sectors and estimate ICT BERD within each of them. Then the study assesses the evolution of these expenditures in the context of the Digital Agenda for Europe (DAE) and its specific target to double them by 2020.

Design/methodology/approach

The study assumes that the share of public ICT R&D expenditures in total public R&D expenditures is similar to the share of ICT R&D labour costs. The study bases its estimation on government budget appropriations or outlays on R&D (GBAORD).

Findings

EU public ICT R&D expenditures grew steadily over the period 2004-2010 and in 2010 reached 5.9 billion. The study also estimates that the total EU ICT BERD in 2010 amounted to 15.8 billion. Regarding the DAE target about ICT R&D expenditures, the study shows that, in both public and private, the EU drops behind.

Research limitations/implications

The study estimates that substantial ICT BERD can be found also in non-ICT sectors.

Practical implications

The methodology allows for monitoring one of the DAE targets.

Originality/value

The methodology currently represents the only way for measuring public ICT R&D expenditures in the EU.

Details

info, vol. 16 no. 1
Type: Research Article
ISSN: 1463-6697

Keywords

Article
Publication date: 24 November 2020

Sang Il Kim and Kyung Tae Kim

Corporate social responsibility (CSR) index represents attributes of firms that are differentiated. The purpose of this paper is to investigate the impacts of…

Abstract

Purpose

Corporate social responsibility (CSR) index represents attributes of firms that are differentiated. The purpose of this paper is to investigate the impacts of differentiated CSR, CSRS (strategic CSR activities) and CSRD (defensive CSR activities) on R&D expenditure and its effectiveness on firm values.

Design/methodology/approach

The sample includes 1,388 firm-year observations for 2004–2015 of listed firms on the Korean Stock Exchange (KSE) whose CSR measures, KEJI (Korea Economic Justice Institute) index are available from the Citizens' Coalition for Economic Justice (2016).

Findings

The results show that while CSRS is positively associated with R&D expenditure, CSRD is not. Further, development costs and its interaction term with CSRS positively affect firm values.

Originality/value

This study provides an important reason to separate the attributes of the CSR in future empirical studies. The results imply that the study of effects of CSR on sustainable growth or firm values should focus on CSRS rather than CSR activities in general in future research.

Details

Asian Review of Accounting, vol. 29 no. 1
Type: Research Article
ISSN: 1321-7348

Keywords

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