Research And Development Costs And The Market Value Of Chinese Companies

In this era of knowledge-based economy, as the hi-tech companies burgeon, it is more and more important for management to measure and disclose the intangible assets properly. However, the increase in the importance of intangible assets did not bring more intangible assets recognized in financial report. Research and development costs of self-developed intangible assets, for example, could only be recognized as expenses in usual, but the stock market captured their values.Comparing the previous Accounting Standards for Business Enterprise: Intangible assets, which Were issued by on 18th January 2001, with the revised Accounting Standard for Business Enterprise No.6: Intangible assets, which were released on 15th February 2006, we found that the accounting treatment for R&D costs changed from fully expensing to qualified capitalization. Generally, According to the prior research, capitalizing the R&D costs that meet certain criteria provides more value relevance than merely expensing them. Thus academics argue that the new standard will help companies to eliminate short-term behavior, enhance the R&D intensity, and increase the profits of hi-tech companies. This dissertation focuses on the relationship between R&D expense and market valuation, discusses whether the change of accounting treatment of R&D costs based on the new standard will influence the value relevance of financial report.At first, the comparative study of accounting treatment of R&D costs in different countries and its chronological development is carried out. Our finding is that the R&D accounting varies when time and environment changes. Specifically, R&D accounting varies with economy environment. Then the R&D accounting treatments are compared. We get to the point that the valuation of R&D treatments has to go with their economy environment. The gap of R&D Disclosure is also addressed.We investigate how R&D influences the market value of companies, using a Tobin's q approach. The result shows that Chinese investors don't aware R&D investment indicated by R&D costs. To explain such phenomenon, the suggestions are given in three aspects: the efficiency of securities market, the disclosure of R&D relevant information and the promoting of self R&D activities in the companies.