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Comparing the value revelance of R&D reporting in Germany: standard and selection effects

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Author Info
Ramb, Fred
Reitzig, Markus
Abstract

On the basis of accounting and market data for firms and groups listed on German stock exchanges between 1997 and 2003, we show that the value relevance of R&D information under German accounting standards can be superior to that provided by US-GAAP and IAS. The results, obtained while dynamically controlling for partial freedom of firms to choose a standard in a modified Q model, show that the risk of IAS/US-GAAP misinforming investors during ?bear market? periods is more relevant than their comparative advantage over the prudence principle of the German Commercial Code in ?bull market? periods. Using the approach chosen for this study, it is possible not only to draw a clear dividing line between standard and selection effects but also to disentangle them along theoretical lines more clearly than in earlier studies. --

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Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2005,36.

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Date of creation: 2005
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Handle: RePEc:zbw:bubdp1:4230

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Related research
Keywords: Accounting standards; standard selection; R&D; value relevance; Germany;

Find related papers by JEL classification:
K11 - Law and Economics - - Basic Areas of Law - - - Property Law
M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
M40 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - General

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References listed on IDEAS
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  1. Bronwyn H. Hall, Adam Jaffe and Manuel Trajtenberg., 2000. "Market Value and Patent Citations: A First Look," Economics Working Papers E00-277, University of California at Berkeley. [Downloadable!]
    Other versions:
  2. Griliches, Zvi, 1981. "Market value, R&D, and patents," Economics Letters, Elsevier, vol. 7(2), pages 183-187. [Downloadable!] (restricted)
    Other versions:
  3. Louis K. C. Chan, 2001. "The Stock Market Valuation of Research and Development Expenditures," Journal of Finance, American Finance Association, vol. 56(6), pages 2431-2456, December. [Downloadable!] (restricted)
  4. Iain Cockburn & Zvi Griliches, 1987. "Industry Effects and Appropriability Measures in the Stock Markets Valuation of R&D and Patents," NBER Working Papers 2465, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1998. "Monetary Policy Shocks: What Have We Learned and to What End?," NBER Working Papers 6400, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Robert E. Verrecchia & Christian Leuz, 1999. "The Economic Consequences of Increased Disclosure," Working Paper Series: Finance and Accounting 41, Department of Finance, Goethe University Frankfurt am Main. [Downloadable!]
  7. William C. Brainard & James Tobin, 1968. "Pitfalls in Financial Model-Building," Cowles Foundation Discussion Papers 244, Cowles Foundation, Yale University. [Downloadable!]
  8. Christian Leuz, 2003. "IAS Versus U.S. GAAP: Information Asymmetry-Based Evidence from Germany's New Market," Journal of Accounting Research, Blackwell Publishing, vol. 41(3), pages 445-472, 06. [Downloadable!] (restricted)
  9. Fields, Thomas D. & Lys, Thomas Z. & Vincent, Linda, 2001. "Empirical research on accounting choice," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 255-307, September. [Downloadable!] (restricted)
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