International Financial Reporting Standards and the value relevance of R&D expenditures: Pre and post IFRS analysis

Syed Zulfiqar Ali Shah, Shuang Liang and Saeed Akbar

International Review of Financial Analysis, 2013, vol. 30, issue C, 158-169

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 11years 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.

Keywords: Value relevance; Capitalized R&D; Expensed R&D; IFRS (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:30:y:2013:i:c:p:158-169

DOI: 10.1016/j.irfa.2013.08.001

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