Title: Economic relevance and determinants of R&D capital in different financial systems

Authors: Pasi Karjalainen

Addresses: Department of Accounting and Finance, University of Oulu, PO Box 4600, FIN-90014 University of Oulu, Finland

Abstract: This paper investigates a firm|s investments in research and development (R&D) capital in different financial systems. This study examines both country-specific and firm-specific factors in the creation of a firm|s R&D capital. The economic relevance of the estimated R&D capital in different financial systems is examined by associating the ratio of estimated R&D capital to the difference between the market and book value of equity (unrecorded goodwill) with different firm-specific characteristics. The results indicate that the ratio of the firm|s R&D capital relative to its unrecorded goodwill is significantly higher in bank-based than market-based financial system. Different firm-specific determinants like past profitability and growth of the firm significantly explain the estimated R&D capital of the firm in both financial systems. The effects of past profitability and growth on the R&D capital are stronger in bank-based than market-based financial system, which highlights the role of bank-based financing over market-based financing in the firms| investments in R&D capital.

Keywords: cost basis method; estimated R&D capital; firm-specific characteristics; financial systems; R&D investment; research and development; equity.

DOI: 10.1504/IJAAPE.2007.012593

International Journal of Accounting, Auditing and Performance Evaluation, 2007 Vol.4 No.1, pp.1 - 30

Published online: 26 Feb 2007 *

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