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Shortcomings in the Measurement of Innovation: Implications for Accounting Standard Setting

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  • Leandro Cañibano
  • Manuel García-Ayuso
  • M. Sánchez

Abstract

Innovation is nowadays a fundamental determinant of value creation in business companies and economic growth. Therefore, the measurement of innovation has become a significant concern both for business companies and governments. Traditionally, attempts to measure innovation have adopted a macroeconomic approach, as they have been largely based on broad surveys. However, no attempt has been made to date in order to complement the information provided by such surveys with aggregated data obtained from the financial reports of individual companies. This paper analyses the conceptual and methodological problems underlying the measurement of business innovation by means of surveys and discusses the lack of ability of accounting standards to accurately reflect innovative activities in the financial statements of business firms. In the light of the evidence provided by the empirical studies published to date, we analyse the Spanish situation by reviewing innovation studies conducted by the National Institute of Statistics (INE), and assessing the relationship between the value relevance of accounting information and the firm's technological level. Our results suggest that both, micro- and macroeconomic approaches towards the measurement of innovation have significant shortcomings. Thus, a joint effort seems to be needed in order to overcome the methodological limitations affecting innovation studies based on surveys and those relying on financial accounting information. Despite their limitations, surveys provide a sound basis for the identification of trends, key factors and explanatory variables. On the other hand, financial statements could provide a sound basis for the measurement of innovation if they included more relevant information on the intangible determinants of the value of companies. This has obvious implications for the standard setting process. Copyright Kluwer Academic Publishers 2000

Suggested Citation

  • Leandro Cañibano & Manuel García-Ayuso & M. Sánchez, 2000. "Shortcomings in the Measurement of Innovation: Implications for Accounting Standard Setting," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 4(4), pages 319-342, December.
    • Handle: RePEc:kap:jmgtgv:v:4:y:2000:i:4:p:319-342
    DOI: 10.1023/A:1009955015494
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    References listed on IDEAS

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    3. Brown, Stephen & Lo, Kin & Lys, Thomas, 1999. "Use of R2 in accounting research: measuring changes in value relevance over the last four decades," Journal of Accounting and Economics, Elsevier, vol. 28(2), pages 83-115, December.
    4. Lev, B & Zarowin, P, 1999. "The boundaries of financial reporting and how to extend them," Journal of Accounting Research, Wiley Blackwell, vol. 37(2), pages 353-385.
    5. Trueman, B & Wong, MHF & Zhang, XJ, 2000. "The eyeballs have it: Searching for the value in internet stocks," Journal of Accounting Research, Wiley Blackwell, vol. 38, pages 137-162.
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    Cited by:

    1. Alfredo D’Angelo, 2012. "Innovation and export performance: a study of Italian high-tech SMEs," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 16(3), pages 393-423, August.
    2. Boly, Vincent & Morel, Laure & Assielou, N’Doli Guillaume & Camargo, Mauricio, 2014. "Evaluating innovative processes in french firms: Methodological proposition for firm innovation capacity evaluation," Research Policy, Elsevier, vol. 43(3), pages 608-622.
    3. Shou-Min Tsao & Guang-Zheng Chen, 2012. "The impact of internationalization on performance and innovation: The moderating effects of ownership concentration," Asia Pacific Journal of Management, Springer, vol. 29(3), pages 617-642, September.

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