R&D-Reporting-Rule-and-Firm-Efficiency
➤ Gửi thông báo lỗi ⚠️ Báo cáo tài liệu vi phạmNội dung chi tiết: R&D-Reporting-Rule-and-Firm-Efficiency
R&D-Reporting-Rule-and-Firm-Efficiency
R&D Reporting Rule and Firm EfficiencyNeil BhattacharyaCox School of Business Southern Methodist University and Singapore Management UniversityYoshie R&D-Reporting-Rule-and-Firm-Efficiency Saito College of Business & Public Administration Old Dominion University ylord@odu.eduRam Venkataraman College of Business University of Texas at ArlingtonJeff Jiewei Yu Cox School of Business Southern Methodist Universityịiexveivuặ smu.edu214-768-8321Current Draft: September, 2013Corresponding Au R&D-Reporting-Rule-and-Firm-Efficiencythor. We would like to thank Linda Bamber. Dirk Black. Indraneel Chakraborty. Qiang Cheng. Hemang Desai. Baruch Lev. Dan Segal. John Semple. Johan SulR&D-Reporting-Rule-and-Firm-Efficiency
aeman. Kumar Venkataraman, Greg Waymire. Wendy Wilson. Xiaojun Zhang, workshop participants at Nanyang Teclmological University. Singapore Management R&D Reporting Rule and Firm EfficiencyNeil BhattacharyaCox School of Business Southern Methodist University and Singapore Management UniversityYoshie R&D-Reporting-Rule-and-Firm-Efficiencyorth Texas. University of Texas at Arlington, and participants at the 2012 Financial Accounting and Reporting Section (FARS) Mid-Year meeting, the 2012 Chinese Accounting Professors' Association of North America (CAP ANA) conference and the 2013 AAA annual meeting for many helpful suggestions.R&D Re R&D-Reporting-Rule-and-Firm-Efficiencyporting Rule and Firm EfficiencyABSTRACTWe examine whether the R&D reporting rule that requires expensing of R&D as incurred leads to longer-term operR&D-Reporting-Rule-and-Firm-Efficiency
ational inefficiency for firms. In Germany, the R&D reporting rule changed from immediate expensing to partial capitalization when Germany adopted IFRR&D Reporting Rule and Firm EfficiencyNeil BhattacharyaCox School of Business Southern Methodist University and Singapore Management UniversityYoshie R&D-Reporting-Rule-and-Firm-Efficiencyl likely mitigate concerns regarding self-selection and omitted firm attributes. We employ Stochastic Frontier Analysis and Data Envelopment Analysis to generate firm-specific efficiency measures. We find that efficiency of German firms improved significantly m the post-IFRS period relative to the p R&D-Reporting-Rule-and-Firm-Efficiencyie period. We. however, find no evidence of efficiency gains for a control sample of companies that have never reported R&D. Our results are robust toR&D-Reporting-Rule-and-Firm-Efficiency
a battery of sensitivity tests suggesting that partial capitalization of R&D is the likely catalyst for the efficiency improvement.JEL ClassificationR&D Reporting Rule and Firm EfficiencyNeil BhattacharyaCox School of Business Southern Methodist University and Singapore Management UniversityYoshie R&D-Reporting-Rule-and-Firm-Efficiencyres that firms expense all research and development (R&D) expenditures as they are incurred. Critics have long opined (e.g.. Aboody and Lev. 1998; Lev, 2001; Lev, 2003. among others) that the current accounting rule of immediately expensing R&D depresses near-term profits, thus incentivizing myopic R&D-Reporting-Rule-and-Firm-Efficiencymanagers to cut necessary investments in R&D to boost short-term earnings.1 This could lead to strategic under-investment in R&D al significant costsR&D-Reporting-Rule-and-Firm-Efficiency
to companies, investors and the U.S. economy as a whole. However, empirical evidence on the effect of the R&D disclosure rale on longer-term firm perfR&D Reporting Rule and Firm EfficiencyNeil BhattacharyaCox School of Business Southern Methodist University and Singapore Management UniversityYoshie R&D-Reporting-Rule-and-Firm-Efficiencyagers, investors and standard setters? In this study, we investigate whether or not the current R&D reporting rule impairs longer-term firm-specific operational efficiency by examining a shift in the accounting regime in Germany from immediate expensing to partial capitalization of R&D.Several studi R&D-Reporting-Rule-and-Firm-Efficiencyes argue that the market fails to fully comprehend the valuation implication of the distortion of short-term profits due to the accounting rule, and aR&D-Reporting-Rule-and-Firm-Efficiency
s a result, firms with greater R&D expenditures are undervalued (e.g., Chan, Lakonishok and Sougiannis, 2001; Lev et al., 2005). This could induce myoR&D Reporting Rule and Firm EfficiencyNeil BhattacharyaCox School of Business Southern Methodist University and Singapore Management UniversityYoshie R&D-Reporting-Rule-and-Firm-Efficiencyonsistent with this notion: Baber et al. (1991) contend that managers reduce R&D when firms face a small earnings decline or loss; Cheng (2004) finds that companies with CEOs who were close to retirement age showed a decrease in R&D expenditures. These studies, however, examine special settings and R&D-Reporting-Rule-and-Firm-Efficiencysmall and select subsets of firms, and it is not clear' l ev, Saralh and Sougiannis (2005) point out that a conservative accounting rule essentially sR&D-Reporting-Rule-and-Firm-Efficiency
hifts earnings from one period to another. Thus, over the lifetime of the enterprise, if reported earnings are understated during certain periods, theR&D Reporting Rule and Firm EfficiencyNeil BhattacharyaCox School of Business Southern Methodist University and Singapore Management UniversityYoshie R&D-Reporting-Rule-and-Firm-Efficiencyepress earnings by amounts greater than the income boosts generated from reversal of old investments. Consequently, the current rule would adversely impact near-term profits if investments in R&D are growing over time. Since the U.S. has experienced substantial growth in R&D investments in recent de R&D-Reporting-Rule-and-Firm-Efficiencycades, the current accounting rule would adversely affect near-term profitability.rhe ratio of R&D investments to Gross Domestic Product (GDP) in theR&D-Reporting-Rule-and-Firm-Efficiency
U.S. has almost doubled from 1953 to 2003 (Wang. 2007). Leonard Nakamura of the Federal Reserve Bank of Philadelphia estimates that the value of invesR&D Reporting Rule and Firm EfficiencyNeil BhattacharyaCox School of Business Southern Methodist University and Singapore Management UniversityYoshie R&D-Reporting-Rule-and-Firm-Efficiencyis sufficient to infer that the RAD reporting rule has longer-term adverse consequences. Furthermore. Skinner (2008) argues that little cogent evidence exists in support of the claim that the current RAD reporting rule has dysfunctional consequences for firms. Consequently, whether or not the curren R&D-Reporting-Rule-and-Firm-Efficiencyt accounting practice leads to longer-term firm-specific inefficiency remains an open question.Several difficulties make this inquiry quite challenginR&D-Reporting-Rule-and-Firm-Efficiency
g. First, the current accounting practice has been in place since 1974? The U.S. economy has changed fundamentally in the last four decades making it R&D Reporting Rule and Firm EfficiencyNeil BhattacharyaCox School of Business Southern Methodist University and Singapore Management UniversityYoshie R&D-Reporting-Rule-and-Firm-Efficiencyy from the rest of the market, so any such inquiry would likely be plagued by concerns that self-selection and omitted firm characteristics contaminate the results. Third, the issue is not the actual RAD expenditures, but RAD outlays managers forego to manage short-term profits, a construct that is R&D-Reporting-Rule-and-Firm-Efficiencyclearly unobservable. The German setting and the methodologies we employ to quantify operational efficiency allow US to address these challenges.SimilR&D-Reporting-Rule-and-Firm-Efficiency
ar to the U.S. GAAP. German accounting standards used to require firms to expense all RAD expenditures as incurred. However, in 2005 Germany adopted tR&D Reporting Rule and Firm EfficiencyNeil BhattacharyaCox School of Business Southern Methodist University and Singapore Management UniversityYoshie R&D-Reporting-Rule-and-Firm-Efficiencyat while firms must expense all research costs as incurred, they must capitalize development expenditures once technological and commercial feasibilities have been established. If expensing RAD incentivizes myopic managers to cut RAD to manage short-term profits, this incentive would be lower, and c R&D-Reporting-Rule-and-Firm-Efficiencyonsequently under-investment in RAD would also likely be lower after IFRS adoption because IFRS allows partial capitalization. If IAS 38 is capable ofR&D-Reporting-Rule-and-Firm-Efficiency
at least partially mitigating the under-investment problem, one would expect that the efficiency of German firms would increase in the post-IFRS regiR&D Reporting Rule and Firm EfficiencyNeil BhattacharyaCox School of Business Southern Methodist University and Singapore Management UniversityYoshie R&D-Reporting-Rule-and-Firm-Efficiencyows tlie development component of RAD of software companies to be capitalized.1 An alternative view (Kanodia et al.. 1989 and Seybert. 2010) suggests that if full capitalization of RAD is mandated, managers' reputational concern would result 111 over-investment in RAD projects already underway. This R&D-Reporting-Rule-and-Firm-Efficiency argument, however, is constructed in the context of hill capitalization. So. it is unclear to what extent it is relevant for a partial capitalizationR&D-Reporting-Rule-and-Firm-Efficiency
disclosure regime.ỌFurthermore, partial capitalization may have useful signaling value. ỈAS 38 directs a firm to make a capitalization judgment basedR&D Reporting Rule and Firm EfficiencyNeil BhattacharyaCox School of Business Southern Methodist University and Singapore Management UniversityYoshie R&D-Reporting-Rule-and-Firm-Efficiencytors. Thus, the capitalization decision allows managers to credibly signal their successes in R&D projects and to reveal their beliefs that sufficient future economic benefits will be generated to recover the development costs. Since such new signals helps reduce information asymmetry and cost of ca R&D-Reporting-Rule-and-Firm-Efficiencypital (Aboody and Lev. 1998; Givoly and Shi. 2008). managers are able to finance a greater number of efficiency-enhancing R&D projects than when theyR&D-Reporting-Rule-and-Firm-Efficiency
are financially constrained. Note that this line of reasoning does not presume opportunistic managerial intentions, but predicts that operational effiGọi ngay
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