The relation between R&D intensity and future market returns: Does expensing versus capitalization matter?

Howard W.H. Chan, Robert W. Faff, Philip Gharghori, Yew Kee Ho*

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

24 Citations (Scopus)

Abstract

The Australian accounting environment provides an ideal setting for examining the impact of different accounting treatments of firms' R&D activities on their subsequent returns. Unlike US firms, which can only expense R&D, Australian GAAP permits firms to either expense or capitalize their R&D expenditure. We examine separately the market impact of the R&D intensity of all R&D active firms, 'capitalizers' and 'expensers'. Our results suggest that firms with higher R&D intensity perform better, regardless of the accounting method used, consistent with the resource-based view of the firm. We also find some evidence that firms which expense R&D outperform those which capitalize R&D after controlling for R&D intensity.

Original languageEnglish
Pages (from-to)25-51
Number of pages27
JournalReview of Quantitative Finance and Accounting
Volume29
Issue number1
DOIs
Publication statusPublished - Jul 2007
Externally publishedYes

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