A Study On The Information Usefulness Of R & D Capitalization: Empirical Evidence From Chinese Stock Market

Accounting Standards for Business Enterprises (ABSE, 2006) about R&D capitalization reflects the processing of accounting standards and international accounting standards convergence trend. It has great practical significance. Provisions of the new guidelines reduce the concerns of the enterprise to some extent and it can effectively encourage enterprises to increase investment in research and development, thus enhancing the capability of independent innovation of enterprise. Meanwhile, the recognition of capitalized R&D expenditures provides new accounting information for investors. This paper analyzes the current disclosure status of development of capitalized R&D expenditures of Chinese stock market from 2007 to 2009. We find that the disclosure situation has improved to some extent. But the disclosure is still not sufficient because of the system itself and the characteristics of R&D projects. Most of the disclosure of information on capitalized R&D expenditures is not up to the standard. In this context, we believe that whether this new information is produced the corresponding market reaction, whether this information has usefulness is an important issue worthy of examination.Based on empirical research approach, we use the annual report data of Chinese stock market from 2007 to 2009 as a sample for the research. First we examine the value relevance of R&D capitalization. The results show that R&D capitalization is significantly positively associated with firm value. The more standardized information disclosures, the larger impact is on the market pricing. This article then tests the information content of R&D capitalization. We find that R&D capitalization can well explain the CAR. We have overcome the limitations of lack of data in previous studies and provide new evidence for domestic R&D study. The results of this paper will help investors understand more deeply about the usefulness of R&D capitalization to make the right investment decisions. At the same time, the paper also provides a reference for the R & D capitalization approach discussion.