R&D ACCOUNTING TREATMENT, FIRM PERFORMANCE, AND MARKET VALUE: BIOTECH FIRMS CASE STUDY
R&D ACCOUNTING TREATMENT, FIRM PERFORMANCE, AND MARKET VALUE: BIOTECH FIRMS CASE STUDY

Summary/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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