The Role of R&D Capitalisations in Firm Valuation and Performance Measurement

Posted: 5 Nov 2011

See all articles by Tony Abrahams

Tony Abrahams

UNSW Australia Business School, School of Accounting

Baljit K. Sidhu

UNSW Australia Business School, School of Accounting

Date Written: Nov 30, 1998

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.

JEL Classification: M40, M41, M49

Suggested Citation

Abrahams, Tony and Sidhu, Baljit K., The Role of R&D Capitalisations in Firm Valuation and Performance Measurement (Nov 30, 1998). Australian Journal of Management, Vol. 23, No. 2, 1998, Available at SSRN: https://ssrn.com/abstract=1950507

Tony Abrahams

UNSW Australia Business School, School of Accounting ( email )

Sydney, NSW 2052
Australia

Baljit K. Sidhu (Contact Author)

UNSW Australia Business School, School of Accounting ( email )

Sydney, NSW 2052
Australia

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