TY - JOUR
T1 - Capitalization of In-Process Research and Development under SFAS 141R and Information Asymmetry
AU - Chung, Hyeesoo (Sally) H.
AU - Hillegeist, Stephen A.
AU - Park, You Il
AU - Wynn, Jinyoung P.
N1 - Funding Information:
* Accepted by Sarah Elizabeth McVay. We are grateful for helpful comments and suggestions provided by two anonymous reviewers, Kristian Allee (discussant), Jenny Brown, Stephen Brown, Shiva Sivaramakrishnan, Phil Reckers, and seminar participants at the 2012 American Accounting Association annual conference, Louisiana Tech University, and the Univer-sity of Houston. Eve Lee and Shihong Li have provided valuable research assistance. Jinyoung P. Wynn is grateful for financial support from the Charles L. Farrar Endowed Professorship that is made available through the State of Louisiana Board of Regents Support Funds. The research was substantially completed while You-il Park was at Nanyang Technolog-ical University. He is currently at the University of Hawaii at Manoa. This paper was previously circulated as a working paper under the title “New Accounting for In-Process Research and Development under SFAS 141R and Information Asymmetry.” † Corresponding author.
Publisher Copyright:
© CAAA
PY - 2019/12/1
Y1 - 2019/12/1
N2 - This study examines the effect of capitalizing acquired in-process research and development (IPR&D) on information asymmetry under Statement of Financial Accounting Standards No. 141 (R) (SFAS 141R). SFAS 141R requires acquirers to fully recognize IPR&D at fair value as an indefinite-lived intangible asset until completion or discontinuation of the project. Prior research suggests IPR&D capitalization will result in an improvement in the information environment. In contrast, we find no evidence that capitalizing IPR&D improved the information environment for IPR&D acquirers. Instead, most of our results suggest no significant change in information asymmetry for IPR&D acquirers during the post-SFAS 141R period, relative to the concurrent changes for non-IPR&D acquirers. In cases in which the results suggest a statistically significant increase, the economic magnitudes are relatively small. In addition, we find no evidence that IPR&D acquirers engaged in increased classification shifting between IPR&D and goodwill during the post-SFAS 141R period, as critics of capitalization had feared.
AB - This study examines the effect of capitalizing acquired in-process research and development (IPR&D) on information asymmetry under Statement of Financial Accounting Standards No. 141 (R) (SFAS 141R). SFAS 141R requires acquirers to fully recognize IPR&D at fair value as an indefinite-lived intangible asset until completion or discontinuation of the project. Prior research suggests IPR&D capitalization will result in an improvement in the information environment. In contrast, we find no evidence that capitalizing IPR&D improved the information environment for IPR&D acquirers. Instead, most of our results suggest no significant change in information asymmetry for IPR&D acquirers during the post-SFAS 141R period, relative to the concurrent changes for non-IPR&D acquirers. In cases in which the results suggest a statistically significant increase, the economic magnitudes are relatively small. In addition, we find no evidence that IPR&D acquirers engaged in increased classification shifting between IPR&D and goodwill during the post-SFAS 141R period, as critics of capitalization had feared.
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U2 - 10.1111/1911-3846.12508
DO - 10.1111/1911-3846.12508
M3 - Article
AN - SCOPUS:85074030692
SN - 0823-9150
VL - 36
SP - 2379
EP - 2407
JO - Contemporary Accounting Research
JF - Contemporary Accounting Research
IS - 4
ER -