Brown Bag Seminar: Wolfgang Schultze
Abstract: In this study, we analyze whether the perceived benefits of capitalizing research and development (R&D) expenditures in fact materialize under IFRS. We analyze the consequences of R&D capitalization on information asymmetries, measured by bid-ask-spreads and forecast errors, and market pricing. We find no evidence that actual R&D capitalization under IAS 38 reduces information asymmetries. Consistent with that we find that the market does not price the resulting accrual component. Our results are consistent with the notion that market participants are wary of actual R&D capitalization due to the discretion and possible manipulation. To the contrary, we find that market participants seem to apply adjustment procedures similar to full R&D capitalization to arrive at their value estimates.