Capitalizing vs expensing R & D and stock price informativeness

Abstract

This project is a study of R&D treatment in UK companies before and after the adaptation of IFRS. It is held in the thesis for the Master's Division of Banking and Financial Management at the University of Piraeus. We use very recent data from UK companies that engage R&D activities and two different periods and respond to these calls for research. We find that the capitalised portion of R&D is not related to market values, suggesting that the market perceives these items as unsuccessful projects without future economic benefits. R&D expenses are significantly and negatively related to market values both under UK GAAP and IFRS, supporting the proposition that they reflect no future economic benefits and thus they should be expensed. Based on these findings, we disagree that transition to IFRS does have implications on the valuation of R&D expenditure in the UK.