Accounting Treatment Of Research And Development R D Accounting Essay

Accounting intervention of research and development ( R & A ; D ) charges is a controversial issue since the manner of taking into history these fees can sometimes be motivated by inducements to manage the concluding consequences.

The consequences of the survey are based on a sample of Gallic companies listed and quoted in the fiscal market: Indeed, this survey examines the extent to which the determinations of the companies to capitalise or non the charges of the R & A ; D can be influenced by motives to pull off net incomes. The Gallic context presents a good illustration to look into our premises, as the PCGR in France offers the ability of taking between capitalisations and write offing R & A ; D charges.

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By utilizing a logistic arrested development theoretical account, we find out that the Gallic quoted companies tend to utilize the capitalisation of the R & A ; D expenditures in order to smooth the consequences, every bit good as, to avoid any misdemeanor of the debts restrictive clauses.

Keywords: R & A ; D accounting, net incomes direction, net incomes smoothing, debt compacts, Gallic companies.

1 Introduction

The passage from an industrial economic system to a cognition economic system has changed the manner of taking into history the economic, accounting and stock market rating of this new field.Intangible assets become the cardinal beginnings of growing and competitory border for houses and industries.According to Penman ( 2009 ) , the success of the best houses in the market is basically due to its cognitions assets: “ Microsoft Corporation ” , which uses a big sum of intangible assets and the great “ Dell Inc… “ , based on a important organisational capital ( Lev et al. , 2009 ) are a few illustrations to show it.

Surveies show that investing in R & A ; D is considered as an of import signifier of investing in technology-in comparing to other intangible investings ( Karl-Heinz, 2005 ) .Companies have invested significant amounts in R & A ; D during the last two decennaries to bring forth future economic benefits to different stakeholders in the firm.Indeed, in the context of Europe 2020 scheme, European Commission announced in July 2010, that a amount of 6400 million Euros will be allocated to put in research and invention ( Eurostat, 2010 ) 1

A house can non vie in this new environment unless it becomes more advanced and responds more efficaciously to consumers demands and penchants. Beyond the economic and fiscal rating of investings in R & A ; D, direction accounting research has late focused on understanding peculiar challenges from an accounting position. The complexness of accounting intervention of R & A ; D expenditures and the diverseness of sentiments on this topic have led to differences in accounting methods in the universe.

The bulk of surveies focused on the relevancy side of accounting determination about R & A ; D expenditures, while few 1s have focused on the dependability side and more specifically the possibility of utilizing the R & A ; D expenditures as a agency of net incomes direction. Banal and Stadler ( 2010 ) have demonstrated important discretion in the pick of R & A ; D undertakings and their accounting intervention.

The job of direction discretion and its consequence on the investing determinations has likely an of import impact on the manner the comptrollers should take into consideration: Indeed, a argument has been raised late in the convergence undertaking between U.S. GAAP and IAS / IFRS. If our research would be able to turn out that the capitalisation of R & A ; D is frequently affected by motives to pull strings the consequences, it will back up the current place of U.S. GAAP ( United States ) , which takes a stricter attack and requires that all R & A ; D expenditures should be expensed in the current period. Alternatively, if research indicates that companies dont usage R & A ; D accounting intervention for net incomes direction intents, it will back up the place of IAS/IFRS under which the capitalisation of R & A ; D expenditures is authorized under certain conditions.

This paper aims to lend to the apprehension of R & A ; D accounting patterns in the Gallic context since Gallic accounting ordinance has given directors considerable flexibleness sing the accounting intervention of R & A ; D expenditures: Indeed, each histrion attempt to protect its specific advantages, it will therefore attempt to utilize its place to maximise net income ( Syed et al. , 2009 ) . Hence, directors, keeping an informational rent, can bask the flexibleness of R & A ; D accounting ordinance in France.

The paper returns as follows, subdivision 2 introduces theoretical foundations of research, subdivision 3 presents the arrested development theoretical account and the research methodological analysis. Finally, subdivision 4 nowadayss the consequences and subdivision 5 concludes the survey.

2 Theoretical foundations

2.1 R & A ; D accounting interventions

2.1.1 The international accounting differences

“ Everyone believes that harmonisation will go on one twenty-four hours, but seemingly no 1 believes it will go on in his or her life-time ” 2 ( Philip R. Lochner, Jr. , a former commissioner of the Securities and Exchange Commission in the USA ) .

The capitalisation of R & A ; D expenditures has ever been a controversial accounting issue. International Accounting Standards discuss accounting for R & A ; D expenditures in IAS No 38 ( IASB, 2004 a, B ) . Paragraph 54 of this standard states that research expenditures shall be expensed in the income statement. Refering development outgos, paragraph 57 provinces that an intangible plus originating from development, must be included in the balance sheet if some conditions are respected.

However, U.S. GAAP adopts a stricter attack to the issue: Indeed, the Financial Accounting Standards Board ( FASB ) , which authorized a first clip activation of R & A ; D expenditures, adopted in October 1974 another attack qualifying that all R & A ; D costs must be instantly expensed harmonizing to SFAS No.23 ( FASB, 1974, paragraph12 ) . The lone exclusion to the full expensing regulation is stated in SFAS No. 864 which is related to the activation of a package development outgos ( FASB, 1985 ) .The same attack was adopted in 1998 by the Business Accounting Deliberation Council ( BADC ) , compeling all Nipponese houses to write off all their R & A ; D expenditures.However, for the instance of Italian or Gallic scenes, the determination to capitalise or write off R & A ; D expenditures is a direction pick. Its national accounting criterions allow the capitalisation of R & A ; D expenditures when certain conditions are met5. A similar attack is applied for British and Canadian houses which proceed to the activation of R & A ; D under certain conditions and therefore their depreciation. However, Germany is characterized by the absence of publication of one-year fiscal statements -except in an IPO- doesnt truly acknowledge the construct of intangible assets, peculiarly the R & A ; D whose activation is prohibited.

2.1.2 R & A ; D accounting intervention in France for listed companies

Since 2005, all listed companies in the European Union ( EU ) states have been obliged to fix their one-year studies in conformity with international criterions ( IFRS / IAS ) .The revised IAS 38 distinguishes between a “ research stage ” and a “ development stage ” . Outgos on research should be expensed: IAS 38 ( 55 ) considers that during the research stage of a undertaking, a company can non show that an intangible plus will bring forth or non likely future economic benefits.

Assetss originating from research ( or from the research stage of an internal undertaking ) shall be recognized. Outgo on research ( or on the research stage of an internal undertaking ) shall be recognized as an disbursal when it occurs.

An intangible plus originating from development ( or from the development stage of an internal undertaking ) shall be recognized if and merely if an entity can show all of the followers:

( a ) The proficient feasibleness of finishing the intangible plus so that it will be available for usage or sale.

( B ) Its purpose to finish the intangible plus and usage or sell it.

( degree Celsius ) Its ability to utilize or sell the intangible plus.

( vitamin D ) How would theses assets generate likely future economic benefits? Among other things, the entity can show the being of a market for the end product of the intangible plus or the intangible plus itself or, if it is to be used internally, the utility of the intangible plus.

( vitamin E ) The handiness of equal proficient, fiscal and other resources to finish the development and to utilize or sell the intangible plus.

( degree Fahrenheit ) Its ability to mensurate faithfully the outgo attributable to the intangible plus during its development “ ( IASB, 2009 ) .

Conditionss stated by the Gallic accounting criterions are similar to those stated by IAS for development costs. The lone difference between Gallic GAAP and IAS/IFRSlies intheobligation ofcapitalization of R & A ; D expenditures, if the conditions stated above are satisfied. Contrary to IAS, French GAAP do non necessitate capitalisation of R & A ; D expenditures when these conditions occur, go forthing flexibleness for the directors.

2.2 Literature reappraisal and research hypotheses

Previous researches have suggested four chief inducements for net incomes direction, derived from the positive of accounting theory.The first motive concerns the debt-covenant, the 2nd inducement is to cut down the variableness of consequences by the direction to increase or diminish net incomes in order to minimise the hazard taken by investors: we speak in this instance about net incomes smoothing, the 3rd motive concerns the decrease of political costs, and eventually the fillip programs.

In this survey, we focus merely on the first three inducements because of the limited disclosure6 of informations on the being and construction of the fillip programs by Gallic companies.

2.2.1 Debt-covenant limitations

The survey of debt-covenants as a determiner of accounting picks suggests that directors are encouraged to bask the flexibleness of criterions by following the accounting picks that allow them to avoid go againsting restrictive debt-covenants, more specifically methods that addition consequences ( Garen et al. , 2008 ) .This is the instance for R & A ; D expenditures since the manner that R & A ; D accounting intervention allows flexibleness in the pick between capitalising and expensing.Thats why, more leveraged companies should be more bucked up to trip their R & A ; D costs instead than write offing them ( Landy and Callimaci, 2002 ; Finet et al. , 2005 ) .Similarly, harmonizing Btriou and Vignolles ( 1990 ) , activation of R & A ; D decreases the fiscal purchase, which creates an inducement for extremely leveraged companies to take the activation instead than expensing.Aboody and Lev ( 1998 ) besides argue that a high degree of debt could force a company to capitalise on its R & A ; D disbursals, because this pick allows the company to better its accounting net income and diminish its debt ratio.

In France particularly, restrictive debt compacts ratios are calculated from accounting consequences, degree of debt and fiscal expenses.Therefore, extremely leveraged houses may be encouraged to do income-increasing accounting determinations ( Shea, 2002 ) .Companies that activate their R & A ; D are more likely to travel off from the boundary misdemeanor of “ debt compacts ” . Therefore, our first hypothesis is formulated as follows:

H1.The chance of capitalising R & A ; D expenditures is positively related to the purchase ratio.

2.2.2 The variableness of consequences

The income-smoothing hypothesis suggests that a directors accounting discretion is led by his desire to cut down the variableness of consequences ( Fudenberg and Tirole, 1995 ) .The smoothing procedure is used to chair the fluctuations in consequences from one twelvemonth to another by reassigning the benefits from peak old ages to less successful periods ( Garen et al. , 2008 ) .Trueman and Titman ( 1988 ) examine the factors that motivate directors to pull strings published consequences and conclude that directors can better the market rating of the company by smoothing the consequences to cut down the extremums and do fluctuations of consequences less volatile.These writers prove that houses smooth their income because they want investors to detect that the company shows a good public presentation and a lower hazard, therefore ensuing in lower cost of capital for the company.

The political costs are besides considered as an of import motive for net incomes smoothing ( Watts and Zimmerman, 1986 ; Cahan, 1992 ; Godfrey and Jones, 1999 ) .Earnings smoothing diverts political purposes ; in fact, overly high incomes attract such attending from authorities and revenue enhancement services. Such concerns may come from employees concerned about the future employment chances, providers and clients who tend to measure the hereafter stability.Another major account of net incomes smoothing has been linked to the wage of a director and its concerns about occupation security, Fudenberg and Tirole ( 1995 ) predict that net incomes smoothing occurs because the director increases published net incomes in hard periods to increase the chance of maintaining their occupation and tends to diminish published income in good periods.

Smoothing consequences were seen both as a positive scheme that allows directors to supply information to private investors ( Tucker and Zarowin, 2006 ) and as a manipulative pattern which is conducted for timeserving intents ( Garen et al, 2008 ) .

In this survey, we did non mean to support either of these two views.Our chief aim is to prove whether the accounting intervention of R & A ; D is used for net incomes smoothing.Nelson et al. ( 2003 ) showed that the accounting intervention of these costs is one of the most common net incomes direction strategies.Therefore, we estimate that companies tend to capitalise their R & A ; D expenditures when their operating profitableness ( before capitalisation of R & A ; D ) is lower to that of recent old ages, while they tend to write off the costs of R & A ; D when their operating profitableness is higher to that of recent years.Similarly, Garen et Al ( 2008 ) have shown through their survey on 130 Italian companies for the old ages 2001, 2002 and 2003 that is a negative relationship between variableness of alterations in income and capitalisation of R & A ; D. We formulate the hypothesis as follows:

H2.The positive variableness of consequences reduces the chance of capitalising R & A ; D expenditures.

2.2.3 The political costs

Harmonizing to Watts and Zimmerman ( 1986 ) , the political cost hypothesis predicts that big houses are more likely to be supervised than little houses, because of the high consequences that may be generated.

Agring with the positive accounting theory, the political visibleness is frequently correlated with the political costs ( Watts and Zimmerman, 1986 ) .The political costs are non based on an explicit contract, but they result from the usage of accounting information.According to Dufour and Zemzem ( 2005 ) , authoritiess and politicians are non the lone 1s who can react.We must besides see actions that can be carried out by employees, brotherhoods, rivals or consumer associations.Indeed, the province can be inferred that the company has a monopoly rent, which falls within antimonopoly law.Similarly, employees or brotherhoods will be motivated to seek a renegotiation of rewards. Firmsize

Firm size is normally used as a placeholder for the political costs. Harmonizing to Ben Othman et Al. ( 2006 ) , houses with larger sizes are more susceptible to incur the force per unit area of political costs than smaller 1s and are therefore capable to greater transportation of wealth.

In other words, when a company has a larger size, its visibleness on the market is larger and it is followed by a larger figure of analysts.

Sing the R & A ; D expenditures, the bulk of surveies retain size as a “ placeholder ” for political costs: Indeed, the more the company is larger, the more its ability to lend to the funding of the province is high ( and Zemzem Dufour, 2005 ) .Governments are hence looking more to big houses ( Aboody and Lev, 1998 ) .Dumontier and Raffournier ( 1998 ) showed that size could besides be a determiner of the determination of capitalisation of R & A ; D.Indeed, the size plays an of import function in many accounting picks. Harmonizing to Dufour and Zemzem ( 2005 ) , a company with a big size will take to farther cut down their consequences than a little company. It follows that big companies should write off their R & A ; D expenditures during the twelvemonth ( Daley and Vigeland, 1983, Percy, 2000 ) .

For big houses, directors choose accounting methods that differ the realisation of net incomes, it means that, they tend to cut down their net incomes and hence to write off R & A ; D costs.

H3.1 The chance of capitalising R & A ; D costs is negatively related to the size. Forces costs

Employees are a cardinal component in the system of corporate governance.They are considered by many writers such as Charreaux and Desbrires ( 1998 ) as suppliers of concern resources and hence assign the value created, every bit good as stockholders, creditors or managers ( Nekhili, 2000 ) .The political costs hypothesis predicts that dialogues with employees encourage companies to cut down accounting net incomes in order to avoid salary demands ( Mora and Sabater, 2008 ) : Indeed, for the bulk of houses, rewards and societal advantages granted to employees are the chief cost incurred during an accounting period ( Breton and Schatt, 2003 ) .Therefore, directors may be tempted to cut down benefits to avoid the hard dialogues with employees or brotherhoods ( Waterhouse et al. , 1993 ) .The hypothesis of an accounting use prior to pay dialogues has already been tested in the United States by Liberty and Zimmerman ( 1986 ) and by D’Souza et Al. ( 2001 ) .

While Liberty and Zimmerman ( 1986 ) dont found any grounds that directors use accounting in order to beef up their place in dialogues with employees, D’Souza and Al. ( 2001 ) have demonstrated the usage by directors of discretional accounting picks to act upon future dialogues with employees particularly when workers are excessively linked to unions.Accordingly, rewards may take directors to follow income-decreasing accounting determinations to avoid salary addition petitions.

Mora and Sabater ( 2008 ) studied a sample of Spanish companies to prove the political costs hypothesis, which states that directors tend to cut down accounting net incomes to avoid pay additions and other petitions from the workers.They found that directors in Spain cut down accounting net income in order to avoid possible dialogues with employees.Flexibility in R & A ; D accounting intervention can function this purpose.We trial the undermentioned hypothesis:

H3.2 The chance of capitalising R & A ; D expenditures is negatively related to the rewards costs.

2.2.4 The industry

Firm industry can be considered as a relevant variable to explicate the accounting patterns ( Watts and Zimmerman, 1986 ; Zeghal and Ben Othman, 2006 ) : Indeed, houses belonging to the same sector are capable to the same environment and hence the same force per unit areas ( Givoly and Palmon, 1982 ; Craswell and Taylor, 1992 ) .

Accounting determination about R & A ; D expenditures differs from one sector to another.The places occupied by companies that invest in high engineering are really delicate and investings in technological invention are really heavy and varied ( Dinging et al. , 2004 ) .Hence, it is necessary to reassure the market on current and future profitableness of the company.Capitalization of R & A ; D is an effectual signal about the future profitableness of the house. Companies in traditional sectors frequently have a changeless and stable flow of R & A ; D activity, it is obvious that they expense more their R & A ; D expenditures. The consequences of the survey by Dinging et Al. ( 2004 ) based on logistic arrested development, applied through empirical observation on a sample of 68 Gallic companies, confirm that companies that capitalize R & A ; D disbursals are those that operate in the high engineering sector.

H4: The chance of capitalising R & A ; D expenditures is positively related to its deductions in high engineering sectors.

2.2.5 The quality of audit

The cardinal function of the external hearer is to attest the regularity of company histories and therefore guarantee conformity with GAAP.A good quality of audit reflects normally a weaker net incomes direction ( Ben Othmen and al. , 2006 ) .However, the impact of audit quality on degrees of discretional use of directors, peculiarly in their accounting patterns for intangible investings is really of import, hearers with high audit quality encourage houses audited by them to pass on their intangible outgo to continue their repute ( Bourmont, 2006 ) .

The bulk of surveies have shown the positive consequence of audit quality on the degree of voluntary offer of information about the R & A ; D activities ( Bourmont, 2006 ) and the degree of capitalisation of R & A ; D expenditures.We hence expect that houses, which hearers have the best quality of audit, are those whose activation degrees of R & A ; D outgos are the highest.In this context, our hypothesis on the quality of audit is formulated as follows:

H5: The chance of capitalising R & A ; D expenditures is positively related to the quality of the external hearer.

2.2.6 Listing on a U.S. market

Some Gallic companies have a double listing France / USA.American accounting ordinances purely required to write off R & A ; D expenditures.French companies listed in the United States are non required to follow U.S. GAAP.It is adequate for them to register a rapprochement of net income and stockholders equity compared to U.S. GAAP ( Report 20-F ) .However, to guarantee comparison and consistence of accounting information, the Gallic companies listed on U.S. markets may be given to write off their R & A ; D expenditures, even for their fiscal statements prepared under Gallic GAAP ( Dinging et al. , 2004 ) .We trial consequently the undermentioned hypothesis:

H6: The chance of capitalisation of R & A ; D expenditures is likely to be reduced in instance of naming on a U.S. market.

2.2.7 The stock market public presentation

The stock market public presentation of a company was used by Garen et Al. ( 2008 ) in their survey as a control variable for future growing chances that influences the pick of accounting the intervention of R & A ; D expenditures.According to Shabou and Taktak ( 2002 ) , the more the company is engaged in growing opportunities the more it could confront more limitations on its support policy.The directors will take by effect to avoid these limitations.

H7: The chance of capitalising R & A ; D expenditures is positively related to the stock market public presentation of the company

2.2.8 The hazard ( ? )

When a company has a higher coefficient hazard factor “ beta ” , the market requires a greater rate of return.The company is hence obliged to demo a more attractive accounting consequence. Contrary to the survey of Garen et Al. ( 2008 ) on a sample of Italian companies that have found no important consequence of the variable “ beta ” on the chance of capitalising R & A ; D expenditures, Dinging et Al. ( 2004 ) have demonstrated, through their survey of the Gallic context, the being of a positive and important relationship between the capitalisation of R & A ; D expenditures and the coefficient hazard “ beta ” of the house.

H8: The chance of capitalising R & A ; D expenditures is positively related to the beta hazard.

3 The arrested development theoretical account and research methodological analysis

3.1 Presentation of arrested development theoretical account

We use a logistic arrested development for our analysis:

Yi = ? 0+ ? 1LEVERAGE+ ? 2? ROA-2+ ? 3SIZE+ ? 4PC + ? 5HI-TECK + ? 6QUAL+ ? 7LIST-U.S + ? 8MB+ ? 9Beta + Ui

Leverage: it is the entire debt divided by the sum of the assets.

? ROA-2: is the alteration in return on assets over the norm of the anterior two old ages.

[ ( N-1 ; N-2 ) ] / ( N-1 ; N-2 ) ; ROA=Operating income/Total assets.

Size: is the natural logarithm of entire assets.

Personal computer: Personnel Costs, it is measured by:

( Wagess and wages + Social security charges ) / Number of employees

HI-TECH: is a dummy variable that takes the value of 1 if the house belongs to a high-technology sector and 0 otherwise.

QUAL: a silent person variable that takes the value of 1 if one of the house is audited by one of the Big 4 and 0 otherwise.

LIST-US: a silent person variable that takes the value 1 if the company is listed on a U.S. market ( NYSE or NASDAQ ) and 0 if the company is non listed on a U.S. market.

Megabit: is the market value of the house divided by the book value.

Beta: is a sensitiveness coefficient of the assets returns to the market returns.It is obtained from informations base “ Thomson One Banker ( TCS ) ” and corresponds to the relationship between alterations of stock monetary values during a period of 23 to 35 back-to-back months and the development of a local index:

3.2 Research Methodology

3.2.1 Sample Selection

Our sample is composed of Gallic companies listed on the Euro-next Paris7 observed in the old ages 2007 and 2008.

To make our sample, we hand-collect as initial population a group of Gallic companies listed on Euro following Paris in 2005-2006-2007-2008.The initial sample contained 125 companies including those ranked among the top 100 in Europe such as: Sanofi Aventis ( 3 ) , Alcatel Lucent ( 9 ) , PSA ( 14 ) , and Renault ( 15 ) .

The pick of France as the state beginning of the sample is non arbitrary ; it can be justified by the fact that Gallic policy is more and more progressively in favour of innovation.According to statistics of the newspaper “ Monitor International Trade, ” France is the tenth member province of the European Union ( EU ) the most innovative.Total R & A ; D expenditures of Gallic companies in relation to GDP are in 7th topographic point ( 1.31 % of GDP ) in the EU ( Samuel, 2009 ) .

Similarly, the Gallic context is really favourable to analyze the inducements of capitalisation of R & A ; D expenditures.Indeed, the Gallic regulative environment is really favourable to “ net incomes direction ” , as it provides some flexibleness sing to the accounting determination of R & A ; D expenditures, since the two accounting interventions are allowed.

Finally, the pick of state of the sample was dictated by practical grounds related to the handiness of information and the ability to hold and understand one-year studies.

3.2.2 Collection, purification and elaborate description of the informations sample Data aggregation

To accomplish this survey, accounting informations have been collected jointly from one-year studies of companies in the sample, information available in the European scoreboard and the database “ Thomson One Banker ( TCS ) 8 ” : Information refering the capitalisation of R & A ; D one-year studies is gathered fromfirms.Data for the old ages 2007 and 2008 sing the market capitalisation of these houses, their industries and the figure of employees are available on the European scoreboard prepared by the Common Center of Research and directorate-general of European Research Commission ( the splashboard of industrial R & A ; D is carried out in 2009, it reports the tendencies of the houses and reports the top 1000 of companies in Europe, harmonizing to their disbursement on R & A ; D in Europe and the same in the universe ) .Data for the old ages 2007 and 2008 refering entire debt, forces costs, net income and quality of the hearer were collected from one-year studies of the firms.This is besides the instance for informations relative to operating net income and entire assets for the old ages 2005-2006-2007-2008 to cipher the fluctuation of ROA2008and ROA2007relative to the norm of two old years.Finally, the information relation to the hazard “ Beta ” is available on the database “ Thomson One Banker ” Purification of informations and description of the sample

We started with a sample of 125 companies. The audience of their one-year studies revealed that 19 of them dont communicate informations about the capitalisation of the R & A ; D, and among the 106 leftover houses, we were forced to extinguish 29 1s because there are other losing informations ( inaccessibility of one-year studies or some other information ) .Hence, the concluding sample includes merely 77 companies.

To depict our sample harmonizing to the activity of the houses, we will take a strict categorization of the sectors, provided by the British Department of Trade and Industry, which presents a typology of 39 sectors of activities into 3 groups of sectors:

The following tabular array shows the distribution of our samples houses by industry and sector group:

Table 1: Distribution of houses by industry


The presentation and information analysis will be done at three degrees:

* Uni-variate analysis

* Bi-variate analysis

* and a multi-variate analysis

4.1 Uni-variate analysis

The description of the sample requires the division of the 130 observations9 ( years-firms ) in two groups:

G1: The group G1 is composed of observations that correspond to the determination of capitalising R & A ; D costs.

G2: The group G2 is composed of observations that correspond to the determination of disbursal R & A ; D costs.

Meanss and standard divergences matching to independent variables like metric ( or uninterrupted 1s ) and the frequences of the dichotomous variables are presented in Tables 2 and 3.

Table 2: Means and standard divergences for uninterrupted independent variables

Continuous variables

Table 3: Frequency of dichotomous independent variables


To prove differences between agencies, the normalcy of the distribution of observations for each metric variable must be checked.The Kolmogorov-Smirnov trial ( K-S ) , operated on six variables, showed that merely two variables are usually distributed ( purchase and hazard ) 10.The trial of differences between agencies for these two variables in the two groups was non significant11.

Two non-parametric trials were performed: The first is the Mann-Whitney test12, operated on four uninterrupted variables, which showed that merely the variable “ Size ” was observed statistically important at degree of 1 % ( Z =- 3.007, sig = 0.003 ) .This consequence confirms the political costs hypothesis ( H3.1 ) that states: ” the chance of capitalising R & A ; D costs is negatively related to size. ”

The 2nd is the Chi-square test13, operated on the dichotomous variables, the three variables used in the theoretical account has an of import impact on the determination of capitalisation of R & A ; D costs.

4.3 Multi-variate analysis: the method of logistic arrested development

The multivariate analysis method used in this research is the logistic arrested development: Indeed, this method allows us to verify the significance of the impact of variables on the chance of taking one of the two ways: either the capitalisation or write offing R & A ; D costs.Some conditions need to be checked for proper application of this method.

4.3.1 Conditionss of application of the logistic arrested development Elimination of outliers

From the sample of 154 observations ( firms-years ) and utilizing the Matlab map ” REMOVEOUTLIER ” ,24 observations were eliminated. The multi-collinearity between variables

The analysis of correlativities between the nine variables utilizing the Matlab map ” corrcoef ” is presented in Table 4 below.

Table 4: Correlation between independent variables


*Correlation important at degree of 5 %

We note that there is:

-A positive and important relation at degree of 5 % between LEVERAGE and SIZE.

We tested the political costs hypothesis by two variables: the SIZE and PC, contrary to the hypothesis of debt-covenant limitations which was measured by a individual variable, which is the debt ratio: So, we choose to extinguish the variable SIZE.

– A positive and important relation at degree of 1 % between HITECH and PC.It is clear that the variable Personal computer is considered as a basic variable in our survey unlike the variable HI-TECH which is a simple control variable. We chose to except the variable HI-TECH since that choice is based on the grade of relevancy of the variable against the aims of our survey.

-A negative and important relation at degree of 1 % between the quality of the hearer and the hazard BETA.A company audited by one of the “ BIG Four ” has ever less of import hazard in the market: Indeed, the investors grant more assurance for houses audited by one of the “ BIG FOUR “ .In this instance we select the variable “ QUAL ” , since we are more interested in cognizing the impact of the quality of the hearer in the pick of accounting for R & A ; D costs.

4.3.2 Presentation and reading of consequences of logistic arrested development

Table 5: Presentation of consequences

Independent Variables

The “ Hosmer-Lemeshow ” trial of goodness-of-fit, known as the most robust trial for the instance of logistic arrested development, noted a grade of significance equal to 0,995, which is good above 0,05. So, the distance between what is observed and what is predicted by the theoretical account is really little, which indicates a good tantrum to the informations.

To look into the strength of association of the theoretical account, we have to see the coefficient R2of Nagelkerke.In our instance, the pseudo R-squared of 22,8 % , which is considered satisfactory compared to other surveies in the same country, indicates that the theoretical account explains 22.8 % of the discrepancy in the dependant variable “ capitalisation of R & A ; D ” costs.

Finally, to measure the prognostic ability of the logistic theoretical account, we established a categorization tabular array utilizing the attack of consecutive exclusion of observations and we found an overall rate of right categorization, lifting to 67,7 % , so the mistake rate rises to 32,3 % .

In the instance of logistic arrested development theoretical account, parametric quantities are estimated by the method of “ maximal likeliness ” .The values of the estimated coefficients of the theoretical account, presented in Table5 are the consequences of the Wald test.The hypothesis H1, saying that the capitalisation is positively related to debt ratio, appears consistent with the theory: Indeed, the consequences show a positive ( 2,594 ) and important ( 0.026 ** ) relationshipat a flat of5 % between the capitalisation of R & A ; D costs and the debtratio.Regarding the variableness of consequences, the hypothesis H2 states that theprobability of capitalising R & A ; D is likely to be reduced when the variableness of consequences is positive.The consequences of our survey confirm this hypothesis: Indeed, we noticed a negative ( -0.005 ) and important ( 0.069 * ) relationshipat a flat of10 % between the capitalisation of R & A ; D and the alteration in return on assets over the norm of the anterior two years.These consequences corroborate those of Garen et Al. ( 2008 ) on a sample of Italian companies.

However, taking into history the political costs hypothesis H3.1, we find an undistinguished relationship between capitalisation of R & A ; D costs and forces costs.

Under hypothesis H5, the capitalisation of R & A ; D costs is positively related to the quality of the external hearer, the consequences show a negative coefficient and undistinguished relationship between these two variables.This consequence can be justified by the little figure of houses which are non audited by one “ BIG FOUR ” .

The hypothesis H6, saying that the listing on a U.S. market influences negatively the determination of capitalisation of R & A ; D costs, is non confirmed in this survey: Indeed, the coefficient associated with the variable COTUS is non statistically important, this consequence can be justified by the fact that our sample contains a really little figure of Gallic companies listed on a U.S. market.

Finally, as respects the hypothesis H7, the coefficient associated with the variable MB is positive, which is consistent with theoretical anticipations, but this coefficient is non statistically important.

After the finding of the important variables, an reading of odds ratios, presented in the column Exp ( B ) , is interesting.The consequences show that indebted house is 13.380 times more likely to be in the group capitalising their R & A ; D costs.However, the odds ratio of the variable “ VAR ROA ” prove that the more the variableness of consequences is positive the lupus erythematosus is the opportunity to fall in the group of companies capitalising their R & A ; D costs ( since the uneven ratio is lower than 1 ) .

5 Decision

The convergence undertaking, late launched by the IASB and the FASB, has raised a argument about what constitutes an optimum accounting criterion for R & A ; D costs.Currently, the two organisations have different places on this issue and empirical researches dont settle for one place or another and battle to happen a common solution.

This work contributes to this argument by supplying empirical grounds on the usage of capitalisation of R & A ; D costs for net incomes direction intents.

Our consequences indicate that the directors use accounting intervention of R & A ; D costs in order to smooth net incomes and to avoid go againsting the compacts of debt understandings.

By detecting that the income smoothing and increasing consequences to avoid go againsting the compacts of debt understandings are considered as an timeserving schemes, we can reason that the current place of the FASB, which does non let flexibleness and requires that all R & A ; D costs should be expensed, is more founded.

However, we must non bury that the benefits of net incomes direction can besides be an effectual and efficient manner to describe and pass on of import information in the market and we should non pretermit the old literature which has frequently defended the capitalisation of R & A ; D costs concentrating on the cardinal quality of relevancy of accounting information.

Therefore, we believe that the best accounting intervention of R & A ; D costs is non found in the automatic executing of these latter as an disbursal, and non in their capitalisation with the hazard of managerial discretion: Indeed, the first possibility is an easy solution and the 2nd 1 is really hazardous solution.

The best accounting intervention is the one which allows a via media between relevancy and dependability of accounting information.

Therefore, it is indispensable to follow an accounting theoretical account thatrequiresthe capitalisation of R & A ; D costs whenlimit, clearandaccurate conditionsare satisfied. In this instance, the border of managerial discretion will be reduced and it will better within the same context, hearer ‘s function to judge the conformity of these conditions.


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