A Study on the Relationship between Discretionary Costs and Firm Valu
Asian Tax Journal Vol. 6 No. 4 (2005), pp. 7-31
Abstract
The discretionary expenses like the research and development costs, advertising and general publicity expenses, and repair and maintenance costs for the fixed assets can play a decisive role in the quality of profit in view of size and importance of the amount. In addition, it is possible to do discretionary selection for the R&D costs according to the success of R&D. Accordingly, the qualitative value of accounting information will be changed as the R&D costs are classified as expenses current year or intangible assets. Also, this research tested hypothesis that there would be differences between IT Firm and non-IT Firm according to the result of these discretionary accounting choice. From the result of this research above, it may be summed up as follows. Considering the relation between the expenditure of R&D costs and Firm value, the results from this study were as shown below. First, the expenditure of R&D costs had a great influence in the Firm value because all the R&D costs were very high as positive(+). Therefore, it needs positive efforts to the investment for the R&D successively in order to improve the Firm value. Second, in case of using Tobin's q as a proxy variable for the Firm value, this study has shown that the classification as assets had a big effect compared with the classification as expenses for the R&D costs. In conclusion, securing the technological power could contribute to the improvement of Firm value by the success from the investment for the R&D costs. Accordingly, it was important for each Firm to invest the R&D costs, but it needs to exert its best efforts to secure the technological power by the success of technological development. Third, as to IT Firm and non-IT Firm, the expenditure of R&D costs for IT Firm had a positive(+) effect on the Firm value as a whole. In particular, in case of classifying the R&D costs as assets, there was very high positive(+) significance statistically, so this study in IT Firm has shown that the success of technological development had a powerful influence on the Firm value. As to non-IT Firm, as a whole, its expenditure of R&D costs had high positive(+) correlation statistically. Among them, the classification as expenses had more positive(+) correlation. Therefore, this study doubts that it might be used as a series of adjusting the profits by classifying it as expenses, regardless of success of findings for the expenditure of R&D costs. In conclusion, the expenditure of R&D costs had an effect on the Firm value. In particular, in case of IT Firm, this study has shown that the existence of success of technological development would be one of important factors to determine the Firm value.
Keywords
- research and development costs
- IT Firm
- Firm value
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