Country Level Corruption and Accounting Choice: Research &amp; Development Capitalisation Under IFRS

Mazzi, Francesco; Slack, Richard; Tsalavoutas, Ioannis; Tsoligkas, Fanis

doi:10.2139/ssrn.2979300

Cited by 2 publications

(33 citation statements)

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“…We collect corporate bond and syndicated loan issues three years after IFRS were adopted or local GAAP was fully converged with IFRS in a country. As we measure financial variables directly prior to the debt issue date (Ge & Liu, ; Liu & Magnan, ) and we also use the lag of some variables in our regressions, a lag of three years ensures that our regression models do not include any firm‐specific controls from the first year of mandatory IFRS reporting when R&D costs could be misreported due to low familiarity with IFRS (Kvaal & Nobes, ; Mazzi, Slack, Tsalavoutas, & Tsoligkas, ). We exclude bonds with a floating rate note and perpetual bonds, as they behave more like equities (Bessembinder, Kahle, Maxwell, & Xu, ).…”

Section: Sample Selection and Research Designmentioning

confidence: 99%

“…This ensures that we have in our sample only those firms with current R&D activity. Firms from the Oil and Gas industry are excluded, since Worldscope may classify extraction costs as capitalized development costs (Mazzi et al., ).…”

Section: Sample Selection and Research Designmentioning

confidence: 99%

“…As our main variable of interest, the amount of R&D a firm capitalized during a year, cannot be directly collected from Datastream, we follow Mazzi et al. () and calculate the amount of R&D a firm capitalized in the fiscal year directly prior to the debt issue date as follows: R&D Asset t 0 (WC02504) – R&D Asset t –1 (WC02504) + Amortization of R&D Asset t 0 (WC01153). Given that in more than 70% of capitalizing firms one of these items was missing, we hand‐collected the relevant data from the companies’ annual reports.…”

Section: Sample Selection and Research Designmentioning

confidence: 99%

“…The amount of R&D a firm capitalized in the fiscal year directly prior to the debt issue date is either calculated based on the coding of Mazzi et al. () or hand‐collected from a firm's annual report.…”

Section: Sample Selection and Research Designmentioning

confidence: 99%

“…Accordingly, we first examined factors that prior literature has found to be related with the amount of capitalized R&D by estimating Equation as a zero (i.e., left) censored Tobit model (Dinh et al., ; Markarian et al., ; Mazzi et al., ). Based on the results from estimating Equation , we then selected variables that are significantly related to the amount of R&D a firm capitalizes in a year.…”

Section: Sample Selection and Research Designmentioning

confidence: 99%

See 4 more Smart Citations

Development costs capitalization and debt financing

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This study investigates debt market effects of research and development (R&D) costs capitalization, using a global sample of public bonds and private syndicated loans issued by public non-financial firms. Firstly, we show that firms capitalize larger amounts of R&D in a year when they exhibit a propensity for issuing bonds, rather than borrowing funds privately from the syndicated loan market, in the subsequent year. Secondly, we provide evidence that capitalized R&D investments reduce the cost of debt. We infer that debt market participants are able to identify firms' motives for R&D capitalization, as we find a reduction in the cost of debt only for those firms that do not show indications of employing R&D capitalization for earnings management reasons. Indeed, only for this sub-sample of firms, the amount of capitalized R&D contributes positively to future earnings. We confirm that R&D capitalization is positively associated with audit fees and thus can be deemed to be a signaling device.Lastly, we find that it is the amount of R&D a firm is expected to capitalize and not the discretionary counterparts, which facilitates a firm's access to public debt markets, reduces bond and syndicated loan prices, and contributes to future benefits.

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Section: Sample Selection and Research Designmentioning

confidence: 99%

Section: Sample Selection and Research Designmentioning

confidence: 99%

Section: Sample Selection and Research Designmentioning

confidence: 99%

Section: Sample Selection and Research Designmentioning

confidence: 99%

Section: Sample Selection and Research Designmentioning

confidence: 99%

See 3 more Smart Citations

Development costs capitalization and debt financing

Kreß

Eierle

Tsalavoutas

2019

Business Fin & Account

Self Cite

View full text Add to dashboard Cite

show abstract

Development Costs Capitalization and Debt Financing

2018

Self Cite

View full text Add to dashboard Cite

This study investigates debt market effects of research and development (R&D) costs capitalization, using a global sample of public bonds and private syndicated loans issued by public non-financial firms. Firstly, we show that firms capitalize larger amounts of R&D in a year when they exhibit a propensity for issuing bonds, rather than borrowing funds privately from the syndicated loan market, in the subsequent year. Secondly, we provide evidence that capitalized R&D investments reduce the cost of debt. We infer that debt market participants are able to identify firms' motives for R&D capitalization, as we find a reduction in the cost of debt only for those firms that do not show indications of employing R&D capitalization for earnings management reasons. Indeed, only for this sub-sample of firms, the amount of capitalized R&D contributes positively to future earnings. We confirm that R&D capitalization is positively associated with audit fees and thus can be deemed to be a signaling device. Lastly, we find that it is the amount of R&D a firm is expected to capitalize and not the discretionary counterparts, which facilitates a firm's access to public debt markets, reduces bond and syndicated loan prices, and contributes to future benefits.

show abstract

Country Level Corruption and Accounting Choice: Research & Development Capitalisation Under IFRS

Cited by 2 publications

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Development costs capitalization and debt financing

Development costs capitalization and debt financing

Development Costs Capitalization and Debt Financing

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