Value－Relevance of Research and Development Expenses and Intangible Assets: Is It a Matter of Accounting Choice?

Abstract

[Purpose]The purpose of this study is to examine whether R&D expenditure and the intangible assets of companies can provide value－relevant information to the capital market, and to examine whether the value－relevance of R&D is different depending on the company’s accounting choice. <br>[Methodology]Using two different regression equations, stock return and operating income are regressed on R&D intensity, intangible assets, and other control variables. <br>[Findings]The results show that both R&D intensity and intangible assets are positively related to stock return and operating income. These findings indicate that R&D expenditures present future economic value, and therefore, should not be treated like other expenses. In addition, this study finds that the value－relevance of R&D expense exists both in DI－ and DS－adopting companies; therefore, it is concluded that the value－relevance of R&D expenditures is not a matter of accounting choice. <br>[Implications]This study provides empirical evidence of the financial value－relevance of R&D expenditure and intangible assets using recent data across industries and countries. These results can be used to develop novel systems that can appropriately value, measure, and report R&D expenses and intangible assets. The results also contribute to the consideration of an accounting method that accepts R&D and intangibles as value－creating assets.