The value relevance of intangibles: the case of software capitalization
Article Abstract:
A study investigated the value relevance of intangibles by examining the importance to investors of information regarding the capitalization of software development costs as stipulated in Statement of Financial Accounting Standard (SFAS) No. 86. Analysis of data from a sample of 163 firms from 1987 to 1995 revealed the positive relationship between annually capitalized development costs and stock returns. Moreover, the cumulative software asset stated on the balance sheet was found to be related to stock prices. Findings also revealed a link between software capitalization data and subsequent reported earnings. In addition, no significant link was found between the judgment used in software capitalize and the quality of reported earnings. Finally, results showed a significant relationship between development costs fully expensed by firms not in compliance with SFAS No 86 and subsequent stock returns.
Publication Name: Journal of Accounting Research
Subject: Business
ISSN: 0021-8456
Year: 1998
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Discussion of 'The Value Relevance of Intangibles: The Case of Software Capitalization.'
Article Abstract:
Aboody and Lev's (1998) paper on the value relevance of intangibles, particularly software capitalization, has certain shortcomings that should be addressed in future research. Their aim was to find an explanation for the campaign waged by the software industry to abolish Statement of Financial Accounting No. 86, which allows capitalization instead of full expensing of software development costs. The researchers were able to show that capitalization of software development costs is rejected by managers and analysts even though it provides value-relevant information because of its earnings effects and forecast accuracy effect. However, their study is flawed as a result of sample selection and potential survivorship bias, regression specification matters, and information substitutes available to analysts. The research design is not appropriate for understanding the motive of the software industry.
Publication Name: Journal of Accounting Research
Subject: Business
ISSN: 0021-8456
Year: 1998
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Information asymmetry, R&D, and insider gains
Article Abstract:
Issues concerning the relationship between information corporate research and development (R&D) departments have access to and the incidence of insider trading are examined. Topics include the conclusion that insider trading gains in firms with R&D departments are higher than those without R&D, that transactions occur when R&D budgets fluctuate, thatnd R&D departments contribute to information asymmetry between managers and investors.
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 2000
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