| Summary: | 碩士 === 朝陽科技大學 === 會計所 === 97 === The immediate expensing of research and development (R&D) expenditures is required by Generally Accepted Accounting Principles (GAAP) in order to conform to the conservatism principle. However, Lev et al. (2005) addressed that there is no accounting procedure consistently used can be always conservative throughout the firm’s life. They proved that the R&D growth rate is higher relative to their profitability, and the earnings reported under current GAAP is smaller relative to that under R&D capitalization, generating a conservative reporting bias; oppositely, it generates an aggressive reporting bias. This study explores the relationship between the earnings reporting biases due to the immediate expensing of R&D expenditures (hereafter, the R&D reporting biases) and future earnings. Further, Mishkin (1983) framework is applied to test for market efficiency in reflecting the R&D reporting biases.
The empirical results show that after controlling for current return on assets (ROA), the R&D report biases is positively associated with short-term future ROA significantly; however, there is no significantly positive relationship between the R&D reporting biases and long-term future ROA. After controlling for current ROA, market appears to rationally reflect the relationship between the R&D reporting biases and short-term future ROA. However, market does significantly underpricing the relationship between the R&D reporting biases and long-term future ROA, indicating that investors over-emphases on firm’s growth opportunity relative to current profitability in anticipating long-term future profitability.
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