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

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  • Ramb, Fred
  • Reitzig, Markus
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    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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    Bibliographic Info

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

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    1. Bronwyn H. Hall and Adam Jaffe, and Manuel Trajtenberg., 2001. "Market Value and Patent Citations: A First Look," Economics Working Papers, University of California at Berkeley E01-304, University of California at Berkeley.
    2. Zvi Griliches, 1984. "Market Value, R&D, and Patents," NBER Chapters, in: R & D, Patents, and Productivity, pages 249-252 National Bureau of Economic Research, Inc.
    3. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics, Elsevier, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148 Elsevier.
    4. Kothari, S. P. & Zimmerman, Jerold L., 1995. "Price and return models," Journal of Accounting and Economics, Elsevier, Elsevier, vol. 20(2), pages 155-192, September.
    5. Fields, Thomas D. & Lys, Thomas Z. & Vincent, Linda, 2001. "Empirical research on accounting choice," Journal of Accounting and Economics, Elsevier, Elsevier, vol. 31(1-3), pages 255-307, September.
    6. Louis K. C. Chan, 2001. "The Stock Market Valuation of Research and Development Expenditures," Journal of Finance, American Finance Association, American Finance Association, vol. 56(6), pages 2431-2456, December.
    7. 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.
    8. William C. Brainard & James Tobin, 1968. "Pitfalls in Financial Model-Building," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 244, Cowles Foundation for Research in Economics, Yale University.
    9. Christian Leuz, 2003. "IAS Versus U.S. GAAP: Information Asymmetry-Based Evidence from Germany's New Market," Journal of Accounting Research, Wiley Blackwell, Wiley Blackwell, vol. 41(3), pages 445-472, 06.
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