Anne Cazavan-Jeny

The negative impact of R&D capitalization: A value relevance approach

Abstract Accounting for R&D costs is an open issue. SFAS N°2 mandates that all R&D costs must be immediately expensed. IAS 38 requires capitalization of R&D costs if they meet certain criteria. Recent research papers show the value relevance of capitalized R&D. We test the value relevance of R&D reporting in a sample of 197 French firms between 1993 and 2002. The French context provides an interesting field for R&D value relevance studies because both accounting treatments of R&D costs (expensing and capitalization) are allowed. Unlike previous studies, we find that capitalized R&D is negatively associated with stock prices and returns. This negative coefficient on capitalized R&D implies that investors are concerned with and react negatively to capitalization of R&D. We also find that the firms choosing to capitalize (successful) R&D are smaller, more highly leveraged, less profitable and have less growth opportunities. Taking into account these characteristics, our robustness checks confirm that capitalized R&D is not associated with higher prices and is related to lower returns.

Fair Value Accounting and the Banking Crisis in 2008: Shooting the Messenger

The paper sets out to analyse the effects of the financial crisis on the international standard-setter in 2008 and the attempts made to shoot the messenger – to blame IAS 39 for creating the crisis for reporting unrealised losses, rather than the cause being bankers making bad investment decisions. It first provides a brief analysis of IAS 39 and fair value accounting for financial instruments. It then sets out the relationship with the Basel II banking regulatory regime. The main part of the paper is a chronological presentation of the events of 2008 as they impact upon the international standard-setting institution. In particular, we analyse the impact of the G20 requirements and the blunt intervention of the European Commission that led to amendments to IAS 39. The final part of the paper looks at the consequences as they are so far discernible and the damage done to the IASB by shooting the messenger.

Levels of voluntary disclosure in IPO prospectuses: an empirical analysis

This paper focuses on how forecasts information is disclosed in IPO prospectuses. In France, managers report either detailed forecasts or only a brief summary. We investigate the determinants and consequences of the varying levels of detail provided in these forecasts. Based on a sample of 82 IPOs on the Euronext Paris market (2000-2002), we show that only two variables are associated with highly detailed forecast disclosures: forecast horizon and firm age. We also find that the forecast error decreases as the level of detail in the forecast disclosures increases. This finding is robust to our reverse causality test (Heckman two-stage self-selection procedure) and suggests that the level of detail in forecast disclosures enhances the reliability of earnings forecasts.