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Real effects of capitalized research and development expenditures: a leading indicator for future innovation performance?

Author

Listed:
  • Wolfgang Herb

    (University Augsburg)

  • Maria Lotze

    (University Augsburg)

  • Wolfgang Schultze

    (University Augsburg)

  • Philipp Sandner

    (Frankfurt School of Finance & Management)

Abstract

This paper analyzes the relationship between capitalized Research and Development (R&D) expenditures under IFRS and innovation performance measured by patent data. Under IFRS, development expenditures are capitalized when the success of an R&D investment is highly likely. Hence, such capitalization could be a leading indicator for future innovation performance. We analyze this question based on a hand-collected sample of R&D capitalization data under IFRS and patent data from the European Patent Office’s Worldwide Patent Statistical Database. We find that the capitalization rate of R&D is positively related to future patent applications and citations as measures of future innovation performance. We also find a positive association with measures of future financial performance. The results imply that the rate of R&D capitalization is informative and can be considered a leading indicator for future innovation performance.

Suggested Citation

  • Wolfgang Herb & Maria Lotze & Wolfgang Schultze & Philipp Sandner, 2025. "Real effects of capitalized research and development expenditures: a leading indicator for future innovation performance?," Review of Quantitative Finance and Accounting, Springer, vol. 64(1), pages 417-473, January.
    • Handle: RePEc:kap:rqfnac:v:64:y:2025:i:1:d:10.1007_s11156-024-01310-3
    DOI: 10.1007/s11156-024-01310-3
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