1、2350 汉字， 1530 中文 外文翻译 The Determinants and Value Relevance of the Choice of Accounting for Research and Development Expenditures in the United Kingdom Material Source: London Business School Author: Dennis R. Oswald Abstract This paper investigates the determinants and value relevance implications o
2、f the accounting method choice for development expenditures for firms with research and development R&D programs in the United Kingdom UK. Using a sample of 1,780 UK firm-year observations over 1993-1997, of which I classify 231 1,549 firm year observations as Capitalizers Expensers, I find that the
3、 decision to expense versus capitalize is influenced by firm size, the intensity of the firms R&D programs, and whether the firm is in a steady-state with respect to its R&D programs. Results of value relevance tests indicate that Expensers have little to gain, if anything, in terms of value relevan
4、ce from adjusting their reported earnings and book value of equity to reflect as-if capitalized numbers. For the Capitalizers, the value relevance of as-if-expensed earnings and book value of equity is not substantially lower than the value relevance of their reported earnings and book value of equi
5、ty Additional analysis indicates that the steady-state status and R&D intensity of a firms R&D programs may marginally influence the value relevance of their financial information. These results are in contrast to those in US studies that find that capitalization of R&D expenditures greatly enhances
6、 the value relevance of firms financial statements. Key Words: Research and Development, Accounting choice, Value relevance Introduction This paper investigates the determinants and value relevance implications of the accounting method choice for development expenditures for firms with research and
7、development R&D programs in the United Kingdom UK. Under UK GAAP certain development expenditures may be either capitalized or expensed, with the choice left to the discretion of management. Using the reported disclosures of UK firms including their capitalization and amortization schedules, I exami
8、ne two questions related to the expensing versus capitalizing decision: 1 What factors distinguish expensing firms from capitalizing firms?； and 2 Conditional on the choice to expense or to capitalize, does the accounting treatment of development expenditures affect the value relevance of these firm
9、s financial statement information, as captured by the contemporaneous association between security prices and earnings and book value of equity? UK GAAP permits, but does not require, the capitalization and subsequent amortization of development expenditures if five conditions are met: 1 There is a
10、clearly defined project； 2 The related expenditure is separately identifiable； 3 The outcome of the project is examined for its technical feasibility and its ultimate commercial viability considered in the light of factors such as likely market conditions including competing products, public opinion
11、, and consumer and environmental legislation； 4 The aggregate of deferred development costs, any further development costs, and related production, selling and administrative costs is reasonably expected to be exceeded by related future sales or other revenues； and 5 Adequate resources exist, or are
12、 reasonably expected to be available, to enable the project to be completed and to provide any consequential increases in working capital Statement of Standard Accounting Practice SSAP No. 13, 1989. Throughout this paper, I refer to development expenditures that meet conditions 1 - 5 as qualifying d
13、evelopment expenditures. If conditions 1 - 5 are met, UK GAAP does not require capitalization - firms may choose to expense these costs in the period incurred. Thus, my investigations of both managements decision to select one accounting method over another and the possible valuation implications of
14、 that decision assume that UK expensing firms meet the conditions to capitalize certain development expenditures and choose not to. My study is related to three areas of research. The first is research on the determinants of choices among generally accepted accounting rules. In particular, the first
15、 part of my analysis examines UK firms elections to capitalize versus expense qualifying development expenditures. The second set of studies to which my paper contributes is research investigating whether and how the choice of accounting method influences the informativeness or value relevance of in
16、tangibles. Finally, is research on the value relevance of financial information when it is affected by the accounting treatment for R&D expenditures. My paper adds to the extant literature in two main ways. First, by focusing on the capitalization versus expensing decisions made by a sample of UK fi
17、rms, I am able to examine the value relevance effects of actual rather than hypothetical capitalization and amortization rules for qualifying development expenditures. Second my analysis of the value relevance of reported and adjusted accounting information for UK firms allows me to explore the asso
18、ciation between measures of firm value and financial statement information conditional on a firms choice of one accounting treatment over another. My first set of tests examines factors that I hypothesize influence the choice of accounting for development expenditures. Based on prior research, I pos
19、it that both an industry-specific factor product life cycle and firm-specific factors profitability, leverage, R&D intensity, R&D steady-state, systematic risk and firm size influence this choice. Using a sample of 1,780 UK firm-year observations over 1993-1997, of which I classify 231 1,549 firm-ye
20、ar observations as Capitalizers Expensers2, I find that the decision to expense versus capitalize qualifying development expenditures is influenced by firm size smaller firms are more likely to capitalize, the intensity of the firms R&D programs firms with greater R&D intensity are more likely to ca
21、pitalize, and whether the firm is in a steady-state with respect to its R&D programs firms not in steady-state are more likely to capitalize My second set of tests compare the value relevance of both reported earnings and book values of equity versus adjusted values of these variables where the adju
22、stments restate the reported financial information to the alternative accounting method3. The results indicate that Expensers have little to gain, if anything, in terms of value relevance from adjusting their reported numbers to reflect as-if-capitalized numbers. For the Capitalizers, the value rele
23、vance of as-if-expensed earnings and book value of equity is not substantially lower than the value relevance of the reported financial data； the magnitude of any difference in explained variability is small. Additional analyses examine the influence of firms steady-state status and level of R&D int
24、ensity on the value relevance of their earnings and book value of equity. The results indicate that steady-state status and R&D intensity may play a minor role in influencing the value relevance of earnings and book value of equity of firms with R&D programs. Specifically, the explained variation is
25、 generally significantly higher under a policy of capitalizing versus a policy of expensing, with the difference being larger for firms either not in steady-state or with high R&D intensity； however the magnitude of the difference remains small . The rest of the paper is organized as follows. The re
26、lated literature and motivation for this study are provided in section 2. Section 3 develops the hypotheses and research design. The sample and data requirements are discussed in section 4. Section 5 presents the analysis of the determinants of the expense versus capitalization decision, and Section
27、 6 reports results on the value relevance of earnings and book value of equity under each accounting method. Section 7 summarizes the results and concludes. Summary and Conclusion Using the reported disclosures relating to development expenditures of 1,780 UK firm-year observations over 1993-1997, I
28、 investigate two specific questions relating to the capitalize versus expense decision: 1 What factors distinguish expensing firms from capitalizing firms?； and 2 Conditional on the choice to expense or to capitalize, does the accounting treatment of development expenditures affect the value relevan
29、ce of these firms earnings and book value of equity? My first set of tests examines factors that I hypothesize influence the choice of accounting for qualifying development expenditures. Specifically, I use a log it regression of the decision to expense qualifying development expenditures on industr
30、y indicator variables to proxy for product life cycle, profitability, leverage, systematic risk, firm size, R&D intensity and R&D steady-state. The results indicate that larger firms, firms in steady-state and firms with lower R&D intensity are more likely to expense their qualifying development exp
31、enditures. My second set of tests compares the value relevance of reported earnings and book value of equity to the value relevance of the adjusted values of these variables where the adjustments restate earnings and book value of equity to the alternative accounting method. The results conditional
32、on the choice of accounting method for qualifying development expenditures are mixed regarding which method generates the higher value relevant earnings and book value of equity. Specifically, in some instances, adjusted reported financial data explain significantly more of the variation in share pr
33、ices than do reported adjusted financial data for the Expensers Capitalizers； however, the difference in adjusted R2 is small in magnitude. The results of the other tests i.e., the variance of the log of the ratio of predicted share price to observed share price and the explained variability from th
34、e price and return regressions on the R&D components indicate no difference in value relevance between using reported and adjusted numbers. Finally, the results of additional analyses that examine the influence of steady-state status and R&D intensity of firms R&D programs are also mixed. In some cases there is limited evidence that for firms not in steady-state or with high R&D intensity the value relevance of their earnings and book value of equity is higher using numbers based on a policy of capitalization versus expensing.
