Effects of R and D policy choice on accounting performance and market value

Wang, Y, Du, R, Koong, KS and W Fan (2017). Effects of R and D policy choice on accounting performance and market value, R and D Management, 47(4): 545-556.

Using primary data that was gathered from the annual reports of companies listed in the Chinese Stock Exchanges, this study analyzes and compares the different effects of R and D policy choice on their accounting performances and market values. For the period 2007 through 2014, the results show that different R and D policy choices provided different implications in firm value and firm strategy to the market.

Specifically, the firms choosing to capitalize their R and D investments have higher market value, implying that the strategy was focused on sustaining their long-term development. On the contrary, the companies selecting to expense their R and D expenditure have higher accounting performance and the focus was on improving short-term gains. The results of this study suggest that the policy choice on R and D capitalization and expensing is a trade-off result between the accounting performance and the market value of a firm.