The relevance to firm valuation of research and development expenditure in the Australian health-care industry

Lorena Mitrione, George Andrew Tanewski, Jacqueline Birt

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9 Citations (Scopus)


The health-care industry requires large expenditure on research and development (R D), with many projects undergoing long development cycles, usually with uncertain outcomes. Extant research has mainly concentrated on the health-care industry in the United States, where R D costs are expensed as incurred. Previous Australian research has found mixed results in relation to R D expenditure and changes in share price. This study investigates whether R D expenditure reported in the health-care industry since the introduction of IAS 38 is significantly associated with share price. Results of the study show that expensed R D is value-relevant, while a comparison of the pre and post-IAS 38 periods (including pre-global financial crisis (GFC) and GFC periods) shows a statistically significant improvement in the explanatory power of the regression model post-IAS 38, suggesting that R D expenditure reported under the new standard IAS 38 is more useful for decision-making by investors compared with reporting under AASB 1011.
Original languageEnglish
Pages (from-to)425 - 452
Number of pages28
JournalAustralian Journal of Management
Issue number3
Publication statusPublished - 2014

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