The effect of R&D capitalization on revenue-expense matching: Focusing on the bio-pharmaceutical industries in South Korea
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Author(s)Dongjoon ChoiLink to ORCID Index: https://orcid.org/0000-0002-2464-6039
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Inkyung YoonLink to ORCID Index: https://orcid.org/0000-0002-7064-7227
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Hansol LeeLink to ORCID Index: https://orcid.org/0000-0001-6776-410X
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DOIhttp://dx.doi.org/10.21511/imfi.22(1).2025.17
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Article InfoVolume 22 2025, Issue #1, pp. 213-230
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1 Downloads
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Creative Commons Attribution 4.0 International License
The study aims to investigate the effect of research and development (R&D) capitalization on revenue-expense matching in the pharmaceutical and biotechnology industries, with particular attention to the moderating role of corporate governance and the influence of regulatory intervention. While capitalizing R&D expenditures enhances the relevance of financial information and positively impacts firm value, it also increases the risk of earnings management, potentially disrupting revenue-expense matching. Using a fixed-effects regression model, this study analyzes 1,350 firm-year observations from Korean listed firms in the bio-pharmaceutical sector from 2012 to 2022. The sample includes firms with financial statements, auditor data, and detailed disclosures on R&D expenditures, encompassing capitalized R&D costs, R&D expenses recognized in income statements, and those classified as manufacturing costs. The results indicate that R&D capitalization generally weakens revenue-expense matching in these industries. However, the adverse effects are mitigated by the effective implementation of corporate governance mechanisms. Additionally, the Financial Supervisory Service’s thematic supervision of R&D accounting practices has significantly improved revenue-expense matching. Prior to the supervision period (2012–2017), firms exhibited significant discretionary capitalization practices, undermining revenue-expense matching. Following the supervision (2018–2022), improved adherence to accounting standards has enhanced matching quality, underscoring the regulatory intervention’s effectiveness. These findings contribute to the literature by demonstrating that while discretionary R&D capitalization can impair revenue-expense alignment, strong corporate governance and adherence to accounting standards can offset these negative effects. The study provides valuable implications for future research and industry practices, particularly in navigating the trade-offs associated with R&D capitalization.
Acknowledgment
This study was supported by Chungnam National University.
- Keywords
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JEL Classification (Paper profile tab)O32, M41, G32, M40
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References38
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Tables8
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Figures0
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- Table 1. Sample selection process and annual distribution of samples
- Table 2. Descriptive statistics
- Table 3. Correlations (p-values below)
- Table 4. The effect of R&D capitalization on the revenue-expense matching
- Table 5. The moderating effect of the outside directors on the relationship between R&D capitalization and revenue-expense matching
- Table 6. The moderating effect of the largest shareholder’s ownership on the relationship between R&D capitalization and revenue-expense matching
- Table 7. The effect of R&D capitalization on the revenue-expense matching before and after the thematic supervision by the FSS
- Table A1. Variable definition
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What do we know about empirical joint audit research? A literature review
Patrick Velte
doi: http://dx.doi.org/10.21511/afc.01(1).2017.01
Accounting and Financial Control Volume 1, 2017 Issue #1 pp. 4-14 Views: 2040 Downloads: 1281 TO CITEThis literature review evaluates empirical studies which concentrate on economic effects on joint audits from an international perspective. We briefly introduce the theoretical and empirical joint audit framework that comprises an adequate structure of the state-of-the-art of empirical research in this field. This is followed by a discussion of the following output factors of joint audits: (1) audit quality; (2) audit costs and (3) audit market concentration. We will summarize the key findings in each area, and provide a description of the analyzed proxies. Finally, we will discuss the current limitations of the studies and give useful recommendations for future empirical research activities in this topic.
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The effect of dividend payments and firm’s attributes on earnings quality: empirical evidence from Egypt
Gehan A. Mousa ,
Abdelmohsen Desoky
doi: http://dx.doi.org/10.21511/imfi.16(1).2019.02
Investment Management and Financial Innovations Volume 16, 2019 Issue #1 pp. 14-29 Views: 1957 Downloads: 214 TO CITE АНОТАЦІЯThis empirical study aims mainly to investigate the effect of both dividend payments (DP) and five firm's attributes (firm size, firm leverage, firm performance, legal form and audit quality) on earnings quality (EQ) of the most active listed firms in Egypt. A sample of 552 firm-year observations during four years from 2014 to 2017 was used. Hierarchical Multiple Regression (HMR) was used to regress the six independent variables on firms’ EQ through the absence of firms’ earnings management (EM), which was estimated through discretionary accruals (DAC). Main results show that there is some divergence in EM practices over the four years and might suggest that EM by listed firms in Egypt exists especially in the first two years (2014 and 2015); how¬ever, relatively lower EM practices are found in the last two years (2016 and 2017). Correlation results show a number of significant relationships between the EM and three independent variables (firm leverage, legal form and audit quality). HMR results are in line with the results obtained via Pearson correlation.
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IFRS adoption and investor perceptions of earnings quality: evidence from Korea
Heejeong Shin ,
Su-In Kim ,
Sangmi Kim
doi: http://dx.doi.org/10.21511/imfi.15(1).2018.04
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