R&D Investment and the Financial Performance of Technological Firms

Abstract

The growth of technological firms is based on the exploitation of innovative products and services thus forcing them to strongly invest in research and development (R&D). If the R&D expenditures announce the strategic positioning of firms, they can also significantly decrease the financial performances in terms of net income, return and risk. With the IAS 38 standard, the R&D expenditures can be accounted as expenses or assets. This choice has an impact on financial performances but this effect is difficult to forecast because these expenditures increase the information asymmetry between shareholders and managers. We demonstrate that it is preferable to capitalize the R&D expenditures if the firm is able to draw an immediate commercial exploitation from them or to adopt a swarming strategy of innovative projects (spin-off) as the benefits arise in the future.

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