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R&D profitability, intensity and market-to-book: evidence from Australia


  • Kamran Ahmed
  • John Hillier
  • Elisabeth Tanusasmita


Purpose - The purpose of this paper is to assess the financial disclosure Design/methodology/approach - The authors estimated firms' R&D profit rate, measured R&D revenue intensity and modelled the impacts of these and related economic factors, via economic and financial disclosure channels, on market-to-book using data for 1988-2004. Findings - R&D, on average, was profit neutral and had undetectable impacts on market-to-book whether via equity valuation or financial disclosure. Research limitations/implications - Market-to-book's information content is best viewed as conditional on the reference disclosure regime. Australian firms' typically at best minimal R&D profitability is an international anomaly. Data limitations in terms of the generating process and availability mean that R&D's impact on market-to-book via financial reporting is not definitively determined. Practical implications - Restrictive rules on the capitalization of intangible asset-related expenditures under A-GAAP apparently did not adversely impact market-to-book's economic information. AIFRS's more permissive rule risks compromising market-to-book's reliability in such a role. Originality/value - For Australia, the paper is anticipated to be the first to estimate the profit rate of R&D, measure the intensity of R&D, and model R&D's influence on the market-to-book ratio. It develops a framework for the economic and financial reporting impacts of investments on a key indicator of firms' financial standing and contributes to the debate on identifiable intangibles' disclosure.

Suggested Citation

  • Kamran Ahmed & John Hillier & Elisabeth Tanusasmita, 2011. "R&D profitability, intensity and market-to-book: evidence from Australia," Accounting Research Journal, Emerald Group Publishing, vol. 24(2), pages 150-177, September.
  • Handle: RePEc:eme:arjpps:v:24:y:2011:i:2:p:150-177

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    References listed on IDEAS

    1. Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
    2. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 38(2), pages 112-134.
    3. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
    4. Yuan Ding & Hervé Michel Tenenhaus, 2007. "R&D productivity: an exploratory international study," Review of Accounting and Finance, Emerald Group Publishing, vol. 6(1), pages 86-101, February.
    5. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    6. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    7. repec:bla:joares:v:34:y:1996:i:2:p:209-234 is not listed on IDEAS
    8. repec:bla:joares:v:23:y:1985:i:1:p:326-335 is not listed on IDEAS
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