The Role of External Monitoring in Firm Valuation: The Case of R&D Capitalization

Tutticci, Irene, Krishnan, Gopal, & Percy, Majella (2007) The Role of External Monitoring in Firm Valuation: The Case of R&D Capitalization. Journal of International Accounting Research, 6(2), pp. 83-107.

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We investigate whether the use of a high quality auditor and increased regulatory monitoring of R&D reporting influence both the level of R&D expenditure capitalized by Australian companies from 1992 to 2002 and the market’s perception of the reliability of these figures. The results indicate that firms with a higher quality auditor capitalize lower levels of R&D costs and that in the period following increased regulatory monitoring, firms capitalize fewer R&D costs. Analysis of the value relevance of R&D expenditure indicates that the market positively values R&D costs when expensed as incurred. These results are consistent using both price and returns models. Results are less persistent for capitalized R&D amounts. The finding from the returns model indicates that the quality of the auditor appears to enhance the reliability of capitalized R&D costs while the price model suggests that the cumulative R&D asset is less relevant in the period following ASC monitoring.

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ID Code: 7970
Item Type: Journal Article
Refereed: Yes
Additional Information: Access to the author-version is currently restricted pending permission from the publisher. For more information, please refer to the journal’s website (see hypertext link) or contact the author.
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Keywords: R&D, Research and development expenditure, Audit quality, Valuation, Australia
ISSN: 1558-8025
Subjects: Australian and New Zealand Standard Research Classification > COMMERCE MANAGEMENT TOURISM AND SERVICES (150000) > ACCOUNTING AUDITING AND ACCOUNTABILITY (150100) > International Accounting (150104)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Current > QUT Faculties and Divisions > Faculty of Health
Copyright Owner: Copyright 2007 International Accounting Section of the American Accounting Association
Deposited On: 10 Dec 2007 00:00
Last Modified: 25 Jan 2017 03:37

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