Competition for taking the hegemony in the market has made firms to increase their R&D expenditures. Especially, the rate of increase of R&D costs in Information & Communication Industry has been higher than that in any other industries for the last decade. With the increase of R&D costs of firms, the capitalization of R&D expenditures has been one of the most frequently studied issues in accounting researches,
GAAP mandates the expensing of R&D expenditures that cannot meet some conditions, because of a concern with the value-relevance. Such R&D expenditures are Research and Ordinary development costs. To verify the value-relevance of R&D expenditures accounted as expense, a series of tests, which include adjust ing the reported earnings and book values of sample firms for the R&D capital izat ion, were performed.
This study found that the R&D expenditures accounted as expense have positive effect on the subsequent stock price in Information & Communication Industry case. Also, it was found that such adjustments for R&D capitalization are value-relevant to investors only in Information & Communication Industry case. Finally, this paper documents that Information & Communication firms should be allowed to capitalize full R&D expenditures.
