Capitalizing R&D expenses versus disclosing intangible information

Mustafa Ciftci () and Nan Zhou ()
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Mustafa Ciftci: American University of Sharjah
Nan Zhou: State University of New York at Binghamton

Review of Quantitative Finance and Accounting, 2016, vol. 46, issue 3, No 8, 689 pages

Abstract: Abstract We study how to improve the value-relevance of financial information for intangible-intensive firms by investigating two alternatives: capitalizing research and development (R&D) expenses and disclosing intangible information. Using patent counts/citations to proxy for intangible intensity, we find that the incremental value-relevance of disclosing patent counts/citations is greater than that of capitalizing R&D expenses for the high-patent group and vice versa for the low- or medium-patent group. Investors favor the disclosure of patent information for firms with more successful innovations. Since disclosing intangible information may lead to appropriation by rivals, we find that, for the high-patent group, the incremental value-relevance of disclosing patent counts/citations is more pronounced for firms in industries with stronger protection of intellectual property. Overall, our results suggest that disclosing R&D outputs can improve the value-relevance of financial statements for firms rich in intangibles and the incremental benefits of such disclosure will be greater in industries with strong protection of intellectual property.

Keywords: Intangible disclosure; R&D capitalization; Patent; Value-relevance (search for similar items in EconPapers)
JEL-codes: M41 O31 O34 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (10)

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DOI: 10.1007/s11156-014-0482-0

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