International Financial Reporting Standards and the value relevance of R&D expenditures: Pre and post IFRS analysis |
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Institution: | 1. Warwick Business School, The University of Warwick, UK;2. University of Liverpool Management School, UK;1. Department of Economics - University of Foggia, Largo Papa Giovanni Paolo II, 1 - 71121 Foggia, Italy;2. Department of Economics and Finance - University of Bari, Via Camillo Rosalba, 53 - 70124 Bari, Italy;1. Yuan Ze University, 135 Yuan-Tung Road, Chung-Li, Taoyuan 32003, Taiwan;2. National Central University, No. 300 Jhongda Rd., Jhongli City, Taoyuan County 32001, Taiwan;3. Nankai University, 94 Weijin Road, Tianjin 300071, Peoples Republic of China |
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Abstract: | This study examines the value relevance of research and development (R&D) expenditures in the pre and post International Financial Reporting Standards (IFRS) periods in the UK. It also examines firm size and sector-based differences in the value relevance of R&D during the sample period between 2001 and 2011. The results indicate that capitalized R&D has value relevance during the 11 years sample period. However, the value relevance of capitalized R&D does not appear to have improved in the post-IFRS period. Large firms present higher value relevance of capitalized R&D than small firms which suggest that firm size has significantly different valuation effects on the value relevance of R&D expenditures. Sectors, however, do not appear to present valuation differences across manufacturing and nonmanufacturing firms. The overall findings of this study report no difference in the value relevance of expensed R&D in the pre and post-IFRS periods; however, the value relevance of capitalized R&D appears to decrease from pre to post-IFRS period. We thus argue that these findings have implications for the regulators and accounting professionals. |
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