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The Role of R&D Capitalisations in Firm Valuation and Perfor Mance Measurement

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  • Tony Abrahams

    (Australian Graduate School of Management, The University of New South Wales, Sydney NSW 2052; E†mail: b.sidhu@unsw.edu.au)

  • Baljit K. Sidhu

    (Australian Graduate School of Management, The University of New South Wales, Sydney NSW 2052; E†mail: b.sidhu@unsw.edu.au)

Abstract

We investigate the value†relevance of capitalised R&D on the balance sheet, and the extent to which R&D accruals improve the association between accounting†based measures of firm perfor Mance and capital market returns for Australian listed companies. This is a regulatory setting where management discretion in the capitalisation decision is permitted and can be empirically observed. Our results suggest that capitalised R&D on the balance sheets of selective capitalisers is value†relevant; that is, the ability of capitalised R&D to explain infor Mation contained in prices (given infor Mation conveyed by other components of the balance sheet) is statistically significant. For the same group of firms R&D accruals (particularly the initial capitalisation) improve accounting earnings as a measure of perfor Mance but only for the pooled sample using contemporaneous returns. The results for the fully expensing sample are less clear, perhaps due to the small sample size.

Suggested Citation

  • Tony Abrahams & Baljit K. Sidhu, 1998. "The Role of R&D Capitalisations in Firm Valuation and Perfor Mance Measurement," Australian Journal of Management, Australian School of Business, vol. 23(2), pages 169-183, December.
    • Handle: RePEc:sae:ausman:v:23:y:1998:i:2:p:169-183
    DOI: 10.1177/031289629802300203
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    2. Philip Brown & Greg Clinch, 1998. "Global Harmonisation of Accounting Standards: What Research into Capital Markets Tells Us," Australian Accounting Review, CPA Australia, vol. 8(15), pages 21-29, May.
    3. Paul H. Jensen & Elizabeth Webster, 2009. "Another Look At The Relationship Between Innovation Proxies," Australian Economic Papers, Wiley Blackwell, vol. 48(3), pages 252-269, September.
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    5. Karen Benson & Peter M Clarkson & Tom Smith & Irene Tutticci, 2015. "A review of accounting research in the Asia Pacific region," Australian Journal of Management, Australian School of Business, vol. 40(1), pages 36-88, February.
    6. Mazzi, Francesco & Slack, Richard & Tsalavoutas, Ioannis & Tsoligkas, Fanis, 2019. "Country-level corruption and accounting choice: Research & development capitalization under IFRS," The British Accounting Review, Elsevier, vol. 51(5).

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