Financial reporting discretion and voluntary disclosure: Corporate research and development expenditure in Australia

Abstract

The aim of this paper1 is to explain Australian R&D capitalization and voluntary disclosure. It is argued that the discretionary choices available to management in Australia with respect to the accounting for and the disclosure of R&D expenditure and activities can be explained by the reduction of information asymmetries and agency costs. The results confirm that three aspects of information asymmetry investigated are important in explaining the discretionary capitalization of R&D expenditure: research intensity; the use of R&D financing arrangements; and the percentage of subsidiaries not wholly owned. Furthermore, research intensity, and the use of R&D financing arrangements are significant in explaining voluntary disclosure of R&D expenditure and activities. These results are robust to the inclusion of controls for other economic characteristics of the firm including share issue, size, accounting performance, leverage, proprietary costs and tax status. © City University of Hong Kong.

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