Accounting for Research and Development Cost - Its influence on the earnings and stock prices of companies

Abstract: Despite the increase in the global trend in R&D cost especially in the manufacturing and pharmaceutical industries, the two main standards setting bodies still maintain controversial treatment of this intangible. This thesis has as purpose to explore the relationship existing between R&D cost, Earnings and stock price of manufacturing and pharmaceutical companies. With the help of a developed model, the authors use primary and secondary data collected, to clearly demonstrate this relationship using simple correlation and regression analysis. Questionnaires were sent to all four companies and the answers gotten from interviews were reviewed. The results supports a direct correlation between R&D cost and earnings and an indirect correlation between R&D cost and stock prices as postulated in our model. The variables are highly influenced by the lag period. It was realized that R&D spending is vital for the survival of this companies with that of pharmaceuticals being inevitable. Besides the economic benefits, investment in R&D cost is relevant for maintaining competent human resource, and goodwill appreciation. The consensus pharmaceuticals are arriving at in their discretionary treatment of this intangible is something really interesting.