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Accounting for R&D Investments According to IAS 38

And the Conflicting Forces that Shape Financial Accounting: An Empirical Analysis

Series:

Michael Ordosch

The thesis empirically investigates two conflicting views on the accounting treatment of R&D outlays according to IAS 38. Proponents of a capitalization of R&D outlays argue that this accounting policy provides relevant information to investors. In contrast, those opposing such a capitalization state that the resulting asset is too uncertain. The findings demonstrate that the arguments of both supporters and opponents basically remain valid and are therefore to some extent incompatible. However, given this incompatibility a discussion of the empirical findings in context with the arguments brought forward within the political debate surrounding IAS 38 illustrates that IAS 38 eventually pursues a reasonable approach to balance these conflicting views.

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∞ ……………… infinity α ………………. valuation parameter of the Ohlson (1995) model β ………………. beta (systematic risk) a ………………. anticipated information BVE …………... book value of equity BVE adj ………… adjusted book value of equity (book value of equity less net capitalized development costs) γ ………………. persistence parameter of other value relevant information C ……………… capital contributed CapEx ………… capital expenditures CoE …………… cost of equity Δ ………………. change operator δ ………………. derivation operator Div ……………. dividends ε ………………. disturbance term E ……………… accounting earnings E() …………….. expected value operator E* …………….. permanent earnings EBITDA ……… earnings before interest, taxes, depreciation, and amortization EM ……………. earnings management indicator variable EPS …………… earnings per share ERC …………... earnings response coefficient GOV …………...governance indicator h ………………. current accounting information i ……………….. firm index IND …………… industry control variable int ……………... interest payments IS ……………... information set XX LBVE ………… lagged book value of equity LEV …………... leverage Ln …………….. natural logarithm LTA …………... lagged total assets MVA ………….. market value of assets MVC ………….. market value of accounting item of interest MVE ………….. market value of equity MVL ………….. market value of liabilities n ………………. number of observations NI ……………... net income NIBEO ………... net income before extraordinary items OCF …………... operating cash flow ω ……………… persistence parameter of residual income P ………………. share price PPE …………… net property, plant and equipment r ……………….. required rate of return RDExp ………... research and development expenses RETQ ……….... quarterly stock returns Rf ……………... risk free rate RI ……………... residual income RISK ………….. indicator variable for more and less dynamic industries Rit……………… return of firm i in t Rm …………….. market return RNDCAP ……... net capitalized development costs RNDINT_BS …. R&D intensity measured by net capitalized development costs divided by book value of equity RNDINT_CF …. R&D intensity measured by...

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