An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Mustafa Ciftci
The University of Texas at Dallas

Abstract: In this study, I investigate the relationship between R&D expenditures and the informativeness of earnings announcements. Prior research suggests that the expensing of R&D expenditures distorts financial information so that this information does not reflect firm value and performance. Consequently, the distortion in financial information should tend to reduce the informativeness of earnings announcements. In contrast, I find that the informativeness of earnings announcements increases with R&D intensity. I argue that investors in R&D firms face more uncertainty about firm’s prospects; hence, investor demand for information prior to earnings announcements is greater for these firms. Thus, even though financial information may be distorted in R&D firms, earnings announcements are more informative due to greater investor demand for information. I also find that R&D intensity is positively related to earnings response coefficients.

Back to Session Listing

AAA Home Page