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Article
Publication date: 11 April 2023

Qian Long Kweh, Hanh Thi My Le, Irene Wei Kiong Ting and Wen-Min Lu

First, this study assesses the link between research and development (R&D) expenses and firm efficiency. Second, this study explores how family control moderates the link between…

Abstract

Purpose

First, this study assesses the link between research and development (R&D) expenses and firm efficiency. Second, this study explores how family control moderates the link between the two.

Design/methodology/approach

This study uses two measures of time-based firm efficiency, namely, a window slacks-based measure (WSBM) and a window epsilon-based measure (WEBM) of data envelopment analysis (DEA). Then, 216 firm-year observations are analyzed in the Taiwanese cultural and creative industries from 2005 to 2017.

Findings

This study finds that R&D expenses significantly worsen firm efficiency, and that family control positively moderates this effect. A further test separating the sample into family-controlled and nonfamily-controlled firms indicates that R&D expenses negatively affect the efficiency of nonfamily-controlled firms but positively affect that of family-controlled firms.

Research limitations/implications

The existing literature has examined the link between R&D expenses and corporate performance. However, the process by which R&D expenses affect corporate performance from a production perspective remains unknown.

Originality/value

Overall, this study provides insights for policymakers to scrutinize resource management and R&D expenses from the production and resource-based perspectives.

Details

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

Keywords

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 long…

1544

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: 28 September 2023

Ines Gharbi, Mounira Hamed-Sidhom and Khaled Hussainey

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…

Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Research limitations/implications

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.

Practical implications

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.

Originality/value

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.

Details

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

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 economic…

1140

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.

7238

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: 26 August 2022

Thi Thu Ha Nguyen, Salma Ibrahim and George Giannopoulos

The use of models for detecting earnings management in the academic literature, using accrual and real manipulation, is commonplace. The purpose of the current study is to compare…

Abstract

Purpose

The use of models for detecting earnings management in the academic literature, using accrual and real manipulation, is commonplace. The purpose of the current study is to compare the power of these models in a United Kingdom (UK) sample of 19,424 firm-year observations during the period 1991–2018. The authors include artificially-induced manipulation of revenues and expenses between zero and ten percent of total assets to random samples of 500 firm-year observations within the full sample. The authors use two alternative samples, one with no reversal of manipulation (sample 1) and one with reversal in the following year (sample 2).

Design/methodology/approach

The authors include artificially induced manipulation of revenues and expenses between zero and ten percent of total assets to random samples of 500 firm-year observations within the full sample.

Findings

The authors find that real earnings manipulation models have lower power than accrual earnings manipulation models, when manipulating discretionary expenses and revenues. Furthermore, the real earnings manipulation model to detect overproduction has high misspecification, resulting in artificially inflating the power of the model. The authors examine an alternative model to detect discretionary expense manipulation that generates higher power than the Roychowdhury (2006) model. Modified real manipulation models (Srivastava, 2019) are used as robustness and the authors find these to be more misspecified in some cases but less in others. The authors extend the analysis to a setting in which earnings management is known to occur, i.e. around benchmark-beating and find consistent evidence of accrual and some forms of real manipulation in this sample using all models examined.

Research limitations/implications

This study contributes to the literature by providing evidence of misspecification of currently used models to detect real accounts manipulation.

Practical implications

Based on the findings, the authors recommend caution in interpreting any findings when using these models in future research.

Originality/value

The findings address the earnings management literature, guided by the agency theory.

Details

Journal of Applied Accounting Research, vol. 24 no. 2
Type: Research Article
ISSN: 0967-5426

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 expenses in…

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: 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 implications…

3268

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: 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 differentiated CSR…

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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