When Accounting Meets Intangibles: Does R&D Accounting Treatment Distort Valuation Multiples?

Sammanfattning

Background: Corporate value creation has shifted significantly in recent decades, from tangible assets to intangible assets such as Research & Development (R&D) (WIPO, 2025; Ocean Tomo, 2025). Under IFRS, IAS 38 requires most intangible investments to be expensed rather than capitalized as assets, thereby reducing reported earnings, understating invested capital, and potentially distorting valuation multiples (Xie & Zhang, 2023; Mauboussin & Callahan, 2024). Purpose: This study will examine how the treatment of internally generated intangible assets under IAS 38 influences accounting-based valuation multiples, using R&D as a proxy. The study examines EV/EBITDA and P/E, two commonly used valuation multiples (Mauboussin & Callahan, 2024) and contributes to the ongoing discussion regarding accounting for intangible assets under IFRS. While existing research focuses on IAS 38, R&D value relevance, and As-if capitalization, limited research examines the effect on valuation multiples, thereby highlighting the originality of this thesis. Method: The study adopts a quantitative, deductive approach, applying an As-if capitalization methodology to 23 firms listed on Nasdaq Stockholm within the Information Technology, Industrial, and Communication Services sectors over the period 2010–2024 (Saunders et al., 2019; Lev & Sougiannis, 1996; Healy et al., 2002). Financial data were manually extracted from annual reports, with stock prices retrieved from Yahoo Finance. R&D expenditures are reclassified as assets and amortized linearly over five years, generating adjusted P/E and EV/EBITDA multiples alongside their reported counterparts (Huang & Diewert, 2011). A fixed-effects panel regression is employed with future stock return as the dependent variable, controlling for size, book-to-market ratio, profitability, investment intensity, and R&D intensity (Basu, 1983; Fama & French, 2015; Gujarati & Porter, 2009). Future stock return is used to assess whether adjusted valuation multiples exhibit greater predictive power, thereby indicating whether the As-if capitalization leads to more value-relevant measures. Conclusion: Expensing R&D under IAS 38 has a measurable effect on reported financial statements: “As if capitalization” reduced P/E by around 21% and EV/EBITDA by 18%, indicating that current accounting treatments overstate valuation multiples. While the regression model shows no statistically significant relationship with valuation multiples and future return, it indicates that the market adjusts for these distortions, consistent with the efficient market hypothesis (Fama, 1970). The study further reveals that operational characteristics such as profitability and book-to-market have greater predictive power for future stock return than accounting-based valuation multiples (Fama & French, 2015; Fama, 1970).