R&D Expenditure and Intangible Assets’ Effect on Value Relevance

Sammanfattning

This study examines whether research and development (R&D) expenditure and capitalized intangible assets affect the value relevance of financial accounting information among US listed firms between 2005 and 2024. Value relevance is defined as the association between financial accounting information and equity prices. Previous research shows conflicting evidence regarding the evolution of value relevance in the modern intangible-intensive economy. While many studies argue that intangible investments negatively affect the usefulness of financial information, few make a clear distinction between unrecognized intangible investments and capitalized intangible assets. Using financial data from firms listed on the NYSE (New York Stock Exchange) and Nasdaq, this study conducts a multivariate regression analysis to test the link between company financials and stock prices of 12,273 firm-year observations. The sample is divided into groups based on high and low levels of R&D and intangible asset intensity, measured relative to yearly medians. The findings show that R&D-intensive firms exhibit a lower total value relevance than low R&D firms. High R&D firms show a lower earnings relevance and a higher book value relevance, indicating that R&D leads to noisy earnings that turn investors to the balance sheet. The increased book value relevance is not sufficient enough to cover the lost earnings relevance, leading to a value relevance loss overall. Intangible-intensive firms exhibit a higher total value relevance compared to firms with lower levels of capitalized intangible assets. These firms show an inverse relationship to R&D-intensive firms, where high intangibles firms demonstrate higher earnings relevance and lower book value relevance compared to low intangibles firms. The earnings relevance increase dominates, leading to improved usefulness of financial statements overall for firms with large intangible asset bases. The study contributes to value relevance literature by providing evidence that declining value relevance is not inherent to intangible-intensive economies, but rather depends on the accounting treatment of intangible investments.