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

Author

Listed:
  • 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)

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.

Suggested Citation

  • Lorena Mitrione & George Tanewski & Jacqueline Birt, 2014. "The relevance to firm valuation of research and development expenditure in the Australian health-care industry," Australian Journal of Management, Australian School of Business, vol. 39(3), pages 425-452, August.
    • Handle: RePEc:sae:ausman:v:39:y:2014:i:3:p:425-452
    DOI: 10.1177/0312896213496256
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    References listed on IDEAS

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    More about this item

    Keywords

    biotechnology; capitalised; expenditure; expensed; health care; IAS 38; research and development; value relevance;
    All these keywords.

    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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