The value relevance of R&D expenditure after the adoption of the International accounting standards by Italian publicly listed companies

We measure the utility for investors of financial data regarding expenditure on research and development, which are disclosed through the firm’s financial statement. With this aim, we analyse financial and market data on a sample of Italian quoted companies, starting from the year in which the International Accounting Standards (IAS) were applied. Through a single measuring model based upon Ohlson’s equation (1995), we simultaneously investigate the value relevance of the different research and development (R&D) accounting treatments (the portion of R&D expenditure which is capitalised and that which is expensed). We find that disclosure, regulated by the IAS, contains value-relevant information. In particular, we find that adoption of the IAS has, on the one hand, constrained management discretion and, on the other, increased the explanatory power earnings have for market values. Finally, we find that R&D is one of the main contributors to the formation of the gap between market and book values in the sampled companies.