R&D profitability, intensity and market‐to‐book: evidence from Australia

Kamran Ahmed, John Hillier and Elisabeth Tanusasmita

Accounting Research Journal, 2011, vol. 24, issue 2, 150-177

Abstract: Purpose - The purpose of this paper is to assess the financial disclosurevis‐á‐viseconomic reality of research and development (R&D) expensed by Australian firms under the pre‐2005 Australian generally accepted accounting principles (A‐GAAP) regime via the lens of market‐to‐book. Design/methodology/approach - The authors estimated firms' R&D profit rate, measured R&D revenue intensity and modelled the impacts of these and related economic factors, via economic and financial disclosure channels, on market‐to‐book using data for 1988‐2004. Findings - R&D, on average, was profit neutral and had undetectable impacts on market‐to‐book whether via equity valuation or financial disclosure. Research limitations/implications - Market‐to‐book's information content is best viewed as conditional on the reference disclosure regime. Australian firms' typically at best minimal R&D profitability is an international anomaly. Data limitations in terms of the generating process and availability mean that R&D's impact on market‐to‐book via financial reporting is not definitively determined. Practical implications - Restrictive rules on the capitalization of intangible asset‐related expenditures under A‐GAAP apparently did not adversely impact market‐to‐book's economic information. AIFRS's more permissive rule risks compromising market‐to‐book's reliability in such a role. Originality/value - For Australia, the paper is anticipated to be the first to estimate the profit rate of R&D, measure the intensity of R&D, and model R&D's influence on the market‐to‐book ratio. It develops a framework for the economic and financial reporting impacts of investments on a key indicator of firms' financial standing and contributes to the debate on identifiable intangibles' disclosure.

Keywords: Australia; Listed companies; Research and development; Financial reporting; Market‐to‐book; Intangibles; A‐GAAP; AIFRS (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:arjpps:v:24:y:2011:i:2:p:150-177

DOI: 10.1108/10309611111163691

Access Statistics for this article

Accounting Research Journal is currently edited by Professor Reza Monem

More articles in Accounting Research Journal from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().