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Capitalization of In‐Process Research and Development under SFAS 141R and Information Asymmetry
Author(s) -
Chung Hyeesoo Sally H.,
Hillegeist Stephen A.,
Park YouIl Chris,
Wynn Jinyoung P.
Publication year - 2019
Publication title -
contemporary accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.769
H-Index - 99
eISSN - 1911-3846
pISSN - 0823-9150
DOI - 10.1111/1911-3846.12508
Subject(s) - goodwill , information asymmetry , business , capitalization , asset (computer security) , dividend , accounting , monetary economics , economics , finance , computer science , linguistics , philosophy , computer security
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.