Real effects of capitalized research and development expenditures: a leading indicator for future innovation performance?

Abstract This paper analyzes the relationship between capitalized Research and Development (R&D) expenditures under IFRS and innovation performance measured by patent data. Under IFRS, development expenditures are capitalized when the success of an R&D investment is highly likely. Hence, such capitalization could be a leading indicator for future innovation performance. We analyze this question based on a hand-collected sample of R&D capitalization data under IFRS and patent data from the European Patent Office’s Worldwide Patent Statistical Database. We find that the capitalization rate of R&D is positively related to future patent applications and citations as measures of future innovation performance. We also find a positive association with measures of future financial performance. The results imply that the rate of R&D capitalization is informative and can be considered a leading indicator for future innovation performance.

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Publication Details

Journal
Review of Quantitative Finance and Accounting
Published
2024-08-09
DOI
https://doi.org/10.1007/s11156-024-01310-3
Citations
9
Primary Topic
Innovation Policy and R&D
Type
article
Field-Weighted Citation Impact
10.16
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article

Real effects of capitalized research and development expenditures: a leading indicator for future innovation performance?

Philipp Sandner, Wolfgang Schultze, Wolfgang Herb, Maria Lotze
9 citations
Review of Quantitative Finance and Accounting
Innovation Policy and R&D
10.16
article

Real effects of capitalized research and development expenditures: a leading indicator for future innovation performance?

Philipp Sandner, Wolfgang Schultze, Wolfgang Herb, Maria Lotze
article en
9 citations

Abstract

Abstract This paper analyzes the relationship between capitalized Research and Development (R&D) expenditures under IFRS and innovation performance measured by patent data. Under IFRS, development expenditures are capitalized when the success of an R&D investment is highly likely. Hence, such capitalization could be a leading indicator for future innovation performance. We analyze this question based on a hand-collected sample of R&D capitalization data under IFRS and patent data from the European Patent Office’s Worldwide Patent Statistical Database. We find that the capitalization rate of R&D is positively related to future patent applications and citations as measures of future innovation performance. We also find a positive association with measures of future financial performance. The results imply that the rate of R&D capitalization is informative and can be considered a leading indicator for future innovation performance.

Review of Quantitative Finance and AccountingVol. 64(1)
University of Augsburg (DE), Frankfurt School of Finance & Management (DE)
Industry, innovation and infrastructure
Openalex Percentile: Top 2%
Innovation Policy and R&D
10.16
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Real effects of capitalized research and development expenditures: a leading indicator for future innovation performance? — Philipp Sandner, Wolfgang Schultze, et al. · Review of Quantitative Finance and Accounting (2024) | TGRS Research Map | TGRS