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Article
Publication date: 3 August 2012

Guy D. Fernando and Qiao Xu

The purpose of this paper is to investigate the way in which CEOs are shielded or rewarded for incurring R&D expenses. Strategic expenses such as R&D yield returns over a…

1464

Abstract

Purpose

The purpose of this paper is to investigate the way in which CEOs are shielded or rewarded for incurring R&D expenses. Strategic expenses such as R&D yield returns over a long period of time even though GAAP requires them to be written off in the period they are incurred. Going beyond the existing shielding paradigm, the paper investigates whether compensation committees actively reward CEOs for incurring strategic expenses.

Design/methodology/approach

The paper uses empirical analysis by using regression analysis with CEO compensation (both cash and equity) as the dependent variable and firm size, firm performance, earnings risk, market‐to‐book ratio, R&D expenses, advertising expenses and governance variables as control, independent and test variables.

Findings

The paper shows that CEOs are not only shielded but are actively rewarded for incurring R&D expenses. The paper also shows that the shield/reward effects are stronger in manufacturing firms. Finally, the paper shows that independent compensation committees increase rewards for R&D expenses.

Research limitations/implications

Given the small sample of firms with advertising expense data, a larger sample, possibly using hand‐collected data will be required to arrive at definitive conclusions regarding shielding/rewarding for advertising. Furthermore, the shielding of both R&D and advertising expenses should be looked at in conjunction with the duration of the persistence of benefits of such strategic expenses.

Originality/value

This paper shows how compensation committees can use compensation to induce executives to undertake strategic expenses on behalf of the firm.

Details

Review of Accounting and Finance, vol. 11 no. 3
Type: Research Article
ISSN: 1475-7702

Keywords

Article
Publication date: 27 February 2007

Yuan Ding, Hervé Stolowy and Michel Tenenhaus

The objective of this exploratory paper is to investigate the impact of R&D expenditures on company performance. R&D activities play an essential role in the future…

1087

Abstract

Purpose

The objective of this exploratory paper is to investigate the impact of R&D expenditures on company performance. R&D activities play an essential role in the future economic development and financial performance of firms.

Design/methodology/approach

The research design is based on an earnings equation associating earnings with recorded assets, R&D expenditures and selling, general and administrative expenses (proxying for advertising expenses). The paper determines a rate of return on R&D for each given sample of firms in six developed countries.

Findings

The results corroborate previous studies of American companies, which found that reported earnings, adjusted for expensing of R&D, reflect realized benefits from R&D. This study provides further evidence on the positive contribution of R&D activities to future company performance, although this contribution can vary from one country to another.

Research limitations/implications

Being exploratory in nature, this paper suggests several areas for investigation.

Originality/value

With the exception of some American studies, the economic effectiveness of investment in R&D is seldom demonstrated explicitly by the literature, and to the best of our knowledge, there are no existing studies on R&D productivity taking an international approach.

Details

Review of Accounting and Finance, vol. 6 no. 1
Type: Research Article
ISSN: 1475-7702

Keywords

Open Access
Article
Publication date: 17 January 2020

Erkki Kalervo Laitinen

The purpose of this study is to introduce a matching function approach to analyze matching in financial reporting.

2874

Abstract

Purpose

The purpose of this study is to introduce a matching function approach to analyze matching in financial reporting.

Design/methodology/approach

The matching function is first analyzed analytically. It is specified as a multiplicative Cobb-Douglas-type function of three categories of expenses (labor expense, material expense and depreciation). The specified matching function is solved by the generalized reduced gradient method (GRG) for 10-year time series from 8,226 Finnish firms. The coefficient of determination of the logarithmic model (CODL) is compared with the linear revenue-expense correlation coefficient (REC) that is generally used in previous studies.

Findings

Empirical evidence showed that REC is outperformed by CODL. CODL was found independent of or weakly negatively dependent on the matching elasticity of labor expense, positively dependent on the material expense elasticity and negatively dependent on depreciation elasticity. Therefore, the differences in matching accuracy between industries emphasizing different expense categories are significant.

Research limitations/implications

The matching function is a general approach to assess the matching accuracy but it is in this study specified multiplicatively for three categories of expenses. Moreover, only one algorithm is tested in the empirical estimation of the function. The analysis is concentrated on ten-year time-series of a limited sample of Finnish firms.

Practical implications

The matching function approach provides a large set of important information for considering the matching process in practice. It can prove a useful method also to accounting standard-setters and other specialists such as managers, consultants and auditors.

Originality/value

This study is the first study to apply the new matching function approach.

Details

Journal of Financial Reporting and Accounting, vol. 18 no. 1
Type: Research Article
ISSN: 1985-2517

Keywords

Article
Publication date: 8 December 2021

Anne Jeny and Rucsandra Moldovan

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.

Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Originality/value

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

Details

Journal of Accounting Literature, vol. 44 no. 1
Type: Research Article
ISSN: 0737-4607

Keywords

Article
Publication date: 16 May 2016

Claudio Petti and Shujun Zhang

This study aims to advance and test a multi-dimensional operationalization of absorptive capacity (ACAP) to ascertain its mediating role in the transformation of R&D

Abstract

Purpose

This study aims to advance and test a multi-dimensional operationalization of absorptive capacity (ACAP) to ascertain its mediating role in the transformation of R&D expenses in actual performance.

Design/methodology/approach

This study departs from the conceptualization of ACAP as a reflective higher-order R&D-based construct, by specifying ACAP into its components and using an operationalization that encompasses both R&D and non-R&D measures to perform mediation analysis on a sample of 1,096 Chinese mainland firms.

Findings

This study's findings report evidence of positive but different roles of the components of ACAP, with specific reference to the positive but partial mediating role of realized ACAP between both R&D expenses and potential ACAP on a firm’s performance. Relevant research and practical implications for both management and policymaking are discussed.

Originality/value

The approach to ACAP conceptualization and measurement taken in this study provides empirical support to an often assumed and, incidentally, under-explored relationship. Moreover, it contributes with a multi-dimensional, non-exclusively R&D-based and process-oriented perspective to the analysis of the role played by ACAP in Chinese firms’ R&D effectiveness.

Details

Measuring Business Excellence, vol. 20 no. 2
Type: Research Article
ISSN: 1368-3047

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

Article
Publication date: 27 June 2008

Seraina C. Anagnostopoulou

The purpose of this paper is to provide a comprehensive review of the literature on R&D expenses and subsequent firm valuation and to briefly highlight some gaps and…

2732

Abstract

Purpose

The purpose of this paper is to provide a comprehensive review of the literature on R&D expenses and subsequent firm valuation and to briefly highlight some gaps and implications for future research.

Design/methodology/approach

The approach is a review of studies on R&D and valuation between 1978 and 2007. The valuation issues have been grouped into general topics identified among the overall volume of research: economic characteristics, actual and forecast firm performance, capital structure, risk, and other topics which do not fit into the previous categories.

Findings

The paper provides a comprehensive assessment of the literature findings on a variation of valuation topics useful for internal and external users of financial statements of firms intensive in R&D investments. It sheds light on certain literature limitations and thus guides the users of financial statements regarding to which issues they should pay attention when analysing the financial statements of firms intensive in R&D.

Research limitations/implications

Existing research on R&D and valuation focuses mainly on the USA and UK and therefore raises issues of generalisation of the results.

Practical implications

The paper provides a useful guide for the users of financial statements of R&D intensive firms, since it provides information on possible consequences of these expenses regarding a variety of valuation issues.

Originality/value

The paper fills an information gap by addressing a range of valuation issues on R&D and offers relevant information guidance to the users of financial statements.

Details

International Journal of Accounting & Information Management, vol. 16 no. 1
Type: Research Article
ISSN: 1834-7649

Keywords

Article
Publication date: 5 September 2019

Elena Makeeva, Ilona Murashkina and Irina Mikhaleva

This study aims to explore the influence of corporate taxation on the performance of innovative companies under various research and development (R&D) tax incentive programs.

Abstract

Purpose

This study aims to explore the influence of corporate taxation on the performance of innovative companies under various research and development (R&D) tax incentive programs.

Design/methodology/approach

The empirical model is based on the data of 520 companies for period 2007-2016. This model includes return on assets as the main proxy for performance and effective tax rate as a main explanatory variable. Controlling for other known determinants, the authors divide the sample into the subsamples to control for the various R&D tax incentive programs. The fact that the model includes the lagged explanatory variable of performance the Blundell –Bond model was applied.

Findings

The authors found evidence that corporate taxation has a significant impact on performance, but the direction could be ambiguous. Impact of the corporate tax rate on performance in general sample is significantly negative, which is consistent with results obtained by authors for the non-innovative companies. However, for further examination, the authors use subsamples of companies with different R&D tax incentive programs. The effect of corporate tax becomes positive under the patent box program only. Moreover, under various R&D tax incentive program, the impact of main control variables has changed. Therefore, the authors conclude that not only corporate taxation but also R&D tax incentive programs significantly influence the performance of innovative companies.

Research limitations/implications

The data are limited due to fragmented information disclosure about the R&D tax incentive program used. Thus, a different data set might reveal new information and correlation between variable on the same topic. Moreover, the authors do not cover all R&D tax incentive programs, which are specified for companies and countries. However, the study fills the gap between corporate taxation, performance and innovative companies. As the significant result was found the further research is important. The study contributes not only in the field of research but also a practical one. The choice of R&D tax incentive program influences main indicators of companies’ performance so it may change the behavior of the investors and decision-making managers of the companies.

Originality/value

Given the increasing interest in the topic of innovative companies, this study fills the gap between corporate taxation in innovative companies and performance. In addition, the importance of R&D tax incentive programs as a feature of innovative companies was found.

Article
Publication date: 14 August 2007

Patricia Mui‐Siang Tan and Chee Yeow Lim

This paper seeks to address the value relevance of summary accounting measures and fundamental income statement variables in the market valuation of biotech firms.

2104

Abstract

Purpose

This paper seeks to address the value relevance of summary accounting measures and fundamental income statement variables in the market valuation of biotech firms.

Design/methodology/approach

A biotech firm's stock price was related to its underlying financial accounting variables. Using the Ohlson model, the linear function of book value and earnings was employed, and the basic model was augmented with additional accounting variables. These accounting variables may provide information relevant for forming an approximation on the present value of expected future abnormal earnings.

Findings

Results show non‐linearities in the pricing of accounting variables Both book value and earnings are value relevant, but positive earnings are positively priced while negative earnings are negatively priced. R&D spending and selling, general and administrative expenses are also priced as assets for loss‐reporting firms, and as expenses for profit‐reporting observations. Including analysts’ forecasts of future earnings and long‐term growth rate in the model results in an insignificant increase in the explanatory power of the regressions.

Research limitations/implications

Future research could attempt to examine the role of non‐financial variables which can proxy for the soft variables and intangibles like strategic alliances and product pipeline. Decomposing revenue into product sales, interest income and collaborative research revenue may further enhance our understanding on the determinants of the market value of biotech stocks.

Originality/value

This paper provides insights into the valuation of biotechnology stocks. Results show non‐linearities in the pricing of summary accounting measures and fundamental income statement variables.

Details

Review of Accounting and Finance, vol. 6 no. 3
Type: Research Article
ISSN: 1475-7702

Keywords

Article
Publication date: 3 July 2009

Radiah Othman and Rashid Ameer

The purpose of this paper is to investigate the determinants and persistence of research and development (R&D) investments in Malaysia.

1792

Abstract

Purpose

The purpose of this paper is to investigate the determinants and persistence of research and development (R&D) investments in Malaysia.

Design/methodology/approach

The approach involves a regression analysis.

Findings

The regression analysis shows that lagged absorbed slack defined as the ratio of selling and administrative expenses to total sales and sales growth have positive affect on the R&D expenses, whereas diversification has negative impact on R&D expenses after controlling for leverage and profitability of the firms. Persistence in the firm‐level R&D expenses is found. Occasional tendency among firms to cut down R&D spending over the period of 2000‐2005 is found.

Research limitations/implications

Sample size is a limitation.

Practical implications

The findings have implications for the corporate governance and innovation charter of the firms.

Originality/value

The paper provides useful information from Malaysia regarding the determinants and persistence of R&D investments.

Details

International Journal of Emerging Markets, vol. 4 no. 3
Type: Research Article
ISSN: 1746-8809

Keywords

1 – 10 of over 44000