شواهدی از زیاندیدگی در گذشته در چین در مورد قابلیت اطمینان سرمایه گذاری
Abstract
1- Introduction
2- R&D accounting in China
3- Literature review and hypothesis development
4- Research design
5- Empirical results
6- Robustness and additional tests
7- Conclusion and discussion
References
Abstract
Unlike prior studies that investigate research and development (R&D) accounting as a dichotomous choice between capitalizing vs. expensing, this study identifies low-reliability R&D capitalization by the occurrence of ex post impairment of capitalized R&D costs. I find that low-reliability capitalization is associated with higher discretionary accruals but fails to signal future innovation, whereas normal capitalization without subsequent impairment lacks earnings aggressiveness and predicts future innovation positively, compared to expensing firms. Next, this study shows that Big 4 and industry specialist auditors improve reliability by notably decreasing the likelihood of low-reliability R&D capitalization. The results remain robust after controlling for R&D investment intensity and potential endogeneity in the capitalization decision. Additional tests show that managers strategically time the recognition of impairment for big-bath and earnings-smoothing purposes, and that analyst coverage does not help differentiate between low-reliability and normal R&D capitalization. Collectively, this paper increases our understanding of R&D accounting and auditing and contributes to the debate on the reliability of R&D capitalization.
Introduction
Accounting for corporate research and development (R&D) costs is a controversial issue worldwide. While the International Financial Reporting Standards allow the capitalization of R&D costs when they meet certain criteria, claiming that it conveys relevant information about a firm’s R&D activities, the U.S. Generally Accepted Accounting Principles mandate the full expensing of all R&D costs for public firms (Lev and Sougiannis, 1996), because R&D capitalization, as Healy et al. (2002) emphasize, creates an opportunity for corporate managers to not only discretionarily capitalize the costs of projects that have a low probability of success but also delay the write-down of impaired R&D assets. The lack of real data on R&D capitalization in the U.S. compels researchers to rely on simulation models (e.g. Lev and Sougiannis, 1996; Kothari et al., 2002). As a result, in the debate on relevance vs. reliability in R&D reporting, the reliability side of the trade-off has received far less investigation than relevance. Recently, however, some empirical evidence on the reliability of R&D capitalization has been provided in a few jurisdictions adopting the International Financial Reporting Standards (IFRS). For example, Prencipe et al. (2008) and Markarian et al. (2008) document that companies in Italy tend to use capitalization for earnings-smoothing purposes; Cazavan-Jeny et al. (2011) find that French firms capitalize R&D outlays when they need to meet or beat earnings thresholds; and Xie et al. (2017) find that firms in China are more likely to capitalize R&D costs when the controlling shareholders’ shares are pledged. Overall, these studies suggest that R&D capitalization is driven by management earnings-related incentives and that its reliability is questionable.