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Abstract:
We investigate the value-relevance of capitalised R&D on the balance sheet,
and the extent to which R&D accruals improve the association between
accounting-based measures of firm performance and capital market returns for
Australian listed companies. This is a regulatory setting where management
discretion in the capitalisation decision is permitted and can be empirically
observed. Our results suggest that capitalised R&D on the balance sheets of
selective capitalisers is value-relevant; that is, the ability of capitalised R&D to
explain information contained in prices (given information conveyed by other
components of the balance sheet) is statistically significant. For the same group
of firms R&D accruals (particularly the initial capitalisation) improve
accounting earnings as a measure of performance but only for the pooled
sample using contemporaneous returns. The results for the fully expensing
sample are less clear, perhaps due to the small sample size.