R&D accounting treatment, firm performance, and market value: Biotech firms case study

Information
Title: R&D accounting treatment, firm performance, and market value: Biotech firms case study
Issue: Vol. 12, No 2, 2019
Published date: 05-2019 (print) / 05-2019 (online)
Journal: Journal of International Studies
ISSN: 2071-8330, eISSN: 2306-3483
Authors: Namryoung Lee
School of Business, Korea Aerospace University, South Korea
Keywords: R&D accounting treatment, decrease in R&D capitalization, biotech, market value
DOI: 10.14254/2071-8330.2019/12-2/4
DOAJ: https://doaj.org/article/7f6b41ad34e04742a06f1b44dadac07f
Language: English
Pages: 66-81 (16)
JEL classification: M41, G32
Website: https://www.jois.eu/?513,en_rd-accounting-treatment-firm-performance-and-market-value-biotech-firms-case-study
File https://www.jois.eu/files/4_620_Namryoung%20Lee.pdf
Licenses:
Abstract

This study examines the correlation between R&D accounting treatment and market value in association with the firm’s performance, with a focus on biotech firms. Firstly, the results of the analysis show that capitalized R&D has a positive correlation with market value, consistent with existing literature. In the case of biotech firms, capitalized R&D has a higher value relevance compared to other industries. Secondly, this study examines the effect of a decrease in capitalized R&D on market value. It is found that the decrease in capitalized R&D has a negative effect on market value, however, this is not the case for biotech firms. In particular, in years where major biotech firms acknowledge and correct their accounting error, capitalized R&D decrease seems to have a more positive effect on market value. Additionally, this study extends the inquiry in association with the company performance and finds the decrease in capitalized R&D has a significant positive association with market value when the firms get better performance. But when the firm’s performance gets worse, a decrease in capitalized R&D adversely affects the market value. However, this is not the case for biotech firms, suggesting excessive expectation around the R&D process of biotechnology firms.

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