Value Relevance of Capitalized Intangibles

Abstract: This study aims to examine the value relevance of different accounting treatments of intangibles. We investigate the immediate expensing of intangible investments in Research and Development (R&D) and Selling, General, and Administrative (SG&A) and, by using methods that attempt to adjust financial statements, we investigate if capitalizing these investments results in a measure with higher value relevance. We use the Classification and Regression Trees (CART) method and linear regression to examine the value relevance of the two different approaches. We find no support that the capitalization approach is more value relevant than current accounting practices.