The relevance to firm valuation of research and development expenditure in the Australian health-care industry

Lorena Mitrione, George Tanewski and Jacqueline Birt
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Lorena Mitrione: Department of Accounting and Finance, Monash University, Australia
George Tanewski: School of Accounting Economics and Finance, Faculty of Business and Law, Deakin University, Australia
Jacqueline Birt: UQ Business School, The University of Queensland, Australia

Australian Journal of Management, 2014, vol. 39, issue 3, 425-452

Abstract: The health-care industry requires large expenditure on research and development (R&D), with many projects undergoing long development cycles, usually with uncertain outcomes. Extant research has mainly concentrated on the health-care industry in the United States, where R&D costs are expensed as incurred. Previous Australian research has found mixed results in relation to R&D expenditure and changes in share price. This study investigates whether R&D expenditure reported in the health-care industry since the introduction of IAS 38 is significantly associated with share price. Results of the study show that expensed R&D is value-relevant, while a comparison of the pre and post-IAS 38 periods (including pre-global financial crisis (GFC) and GFC periods) shows a statistically significant improvement in the explanatory power of the regression model post-IAS 38, suggesting that R&D expenditure reported under the new standard IAS 38 is more useful for decision-making by investors compared with reporting under AASB 1011.

Keywords: biotechnology; capitalised; expenditure; expensed; health care; IAS 38; research and development; value relevance (search for similar items in EconPapers)
JEL-codes: M40 M41 M48 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:39:y:2014:i:3:p:425-452

DOI: 10.1177/0312896213496256

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