Capitalisation of R&D and the informativeness of stock prices: Pre- and post-IFRS evidence

We examine whether requiring (IFRS) versus allowing (UK GAAP) conditional capitalisation of development expenditure affects the extent to which conveys more information about future earnings, relative expensing. show that results in current returns incorporating earnings than expensing under UK GAAP but not IFRS. i.e., amount incorporated into market prices capitalisers is same as from firms R&D This result holds irrespective a firm’s management incentives or strength corporate governance for period argue this because investors experience greater uncertainty regarding realisation economic benefits associated with costs capitalised post-IFRS period. Consistent this, we do find positive association between and variability only, well short-term abnormal expensers pre-IFRS only. Overall, these findings suggest when moving away standard offers an overt option capitalise expense, comes uncertainty, resolved only long term.