ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

The Effects of Smoothing of R&D on Firm Value

  • Young Min Song Mirae Accounting Corporation
  • Ja Eun Koo School of Business Administration, The University of Suwon

Asian Tax Journal Vol. 18 No. 5 (2017), pp. 55-86

Abstract

R&D expenses, by nature, require a lot of financial resources over a longer term in a consistent manner. Despite this, there is a latent uncertainty as to whether such expenses will bring about economic benefits in the future. From this perspective, the importance of how a corporation would be evaluated if R&D smoothing is made. As such, this study verifies the smoothing effect on R&D expenses and analyzed the effect. The analysis on the smoothing of R&D expenses on firm value was carried out by using the level of concentration of R&D and the industry expected to adjust cost a lot of money. The empirical analysis results were as follows. First, a sample of corporations with smoothed out R&D expenses was selected and the correlation between the smoothing and corporate value was analyzed. The result was that the smoothing had a strong negative effect. This result indicates that the smoothing of R&D expenses is not considered positive by external stock holders, including the information that R&D expenses were smaller than the financial leeway variables which are net income or operating cash flow. Second, in the analysis between smoothing out in accordance with the R&D characteristics and corporate value. The analysis showed that while the smoothing of R&D expenses had a significantly negative effect on firm value, the smoothing in accordance with the level of concentration in R&D which is a characteristics of R&D expenses had a significantly negative effect. Lastly, we reviewed that the association between R&D smoothing and firm value depended on how much adjust－expense takes. The analysis showed that while the smoothing of R&D expenses had a significantly positive effect on firm value, the smoothing in accordance with the level of adjust－cost.

Keywords

  • R&D expenses
  • smoothing
  • firm value
  • adjust－cost
  • the level of concentration in R&D
  • firm value

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Asian Tax Journal

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