Does capitalization of acquired in-process R&D convey information in the pricing process?

Dimos Andronoudis and Luminita Enache

Chapter 4 in Handbook on Intangibles, 2026, pp 64-89 from Edward Elgar Publishing

Abstract: We exploit a post-2007 accounting regime (ASC 805), which mandates the capitalization of acquired in-process R&D (AIPR&D), to examine whether such capitalization contains information which is incorporated in the pricing of stocks. We use a stock return decomposition approach to examine our research question. This approach proxies the extent to which market optimism or pessimism about a firm’s future state and prospects, signified by decreasing or increasing future discount rates, changes with AIPR&D capitalization. We find firms which capitalized AIPR&D post-ASC, but could not do so pre-ASC, to now have decreasing future discount rates, indicating that the market is overall optimistic about their prospects. However, the AIPR&D capitalization negatively associates with the revisions in the future discount rates of those firms, indicating that AIPR&D capitalization moderates the overall optimism about the firms’ prospects. This chapter informs researchers, practitioners and standard setters that AIPR&D capitalization under ASC 805 is indeed informative, in that it prompts the market to upwardly revise the future risk implications of capitalized AIPR&D.

Keywords: Acquired in-process R&D; ASC 805; Stock pricing process; Return decomposition; JEL Classification; G12; G14; M40; M41 (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035306367
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