The impact of R&D programme success on the decision to capitalise development expenditures in European firms |
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Authors: | Vincent O'Connell Naser AbuGhazaleh Abdelmounaim Kintou |
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Institution: | 1. Department of Accounting and MIS, Gulf University for Science and Technology, Mubarak Al-Abdullah, Kuwait;2. Amsterdam Business School, University of Amsterdam, Amsterdam, Netherlands;3. Pricewaterhouse Coopers (PwC), Amsterdam, Netherlands |
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Abstract: | The financial reporting treatment of R&D expenditures can have important implications for firms’ strategic investment in R&D. Yet, financial reporting issues have been largely neglected in the R&D management literature. In this study, we first hypothesise that firms’ capitalisation of development expenditures subsequent to the mandatory adoption of IAS 38 (International Accounting Standard 38: Intangible Assets) is positively and significantly impacted by a measure of R&D programme success. Our empirical findings – based on a pan-European sample of firms – reveal strong support for this prediction. Our findings also offer support for our second hypothesis which predicts that capitalisation of development expenditures in conjunction with an evaluation of R&D programme success has a positive and significant impact on growth in shareholder value. Consequently, our work suggests that an important challenge for R&D professionals within firms is to develop improved measures of R&D success and to communicate this information to senior executives. |
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Keywords: | R& D investment financial reporting capitalisation income statement statement of financial position |
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