Accounting Comparability and Corporate Innovative Efficiency

59 Pages Posted: 18 Jul 2016 Last revised: 3 Sep 2019

See all articles by Justin Chircop

Justin Chircop

Lancaster University Management School

Daniel W. Collins

University of Iowa - Department of Accounting

Lars Helge Hass

Lancaster University - Lancaster University Management School; University of Iowa - Henry B. Tippie College of Business

Nhat (Nate) Q. Nguyen

Colorado State University

Date Written: August 31, 2019

Abstract

We predict that a firm’s greater accounting comparability with its industry peers facilitates its learning from those peer firms’ research and development (R&D) investments, allowing that firm to have greater innovative efficiency. We estimate accounting comparability using pro-forma capitalized R&D earnings that link lagged R&D expenditures to future profitability employing the Almon (1965) distributed lag model. We find that greater accounting comparability leads to enhanced ability to predict future cash flows generated by R&D investments of peer firms. In the cross-section, we observe the relation between accounting comparability and innovative efficiency is stronger if peer firms exhibit higher accounting (accrual) quality and are themselves successful innovators. In sum, this study shows that a shared qualitative characteristic of accounting, namely accounting comparability, is positively associated with innovative efficiency.

Keywords: accounting comparability, innovative efficiency, product similarity, product market competition

JEL Classification: G12, G14, O32

Suggested Citation

Chircop, Justin and Collins, Daniel W. and Hass, Lars Helge and Hass, Lars Helge and Nguyen, Nhat (Nate) Q., Accounting Comparability and Corporate Innovative Efficiency (August 31, 2019). Available at SSRN: https://ssrn.com/abstract=2810448 or http://dx.doi.org/10.2139/ssrn.2810448

Justin Chircop (Contact Author)

Lancaster University Management School ( email )

Lancaster University
Lancaster, Lancashire LA1 4YX
United Kingdom

Daniel W. Collins

University of Iowa - Department of Accounting ( email )

108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
319-335-0912 (Phone)
319-335-1956 (Fax)

Lars Helge Hass

University of Iowa - Henry B. Tippie College of Business ( email )

Dept. of Accounting
Iowa City, IA 52242-1000
United States

Lancaster University - Lancaster University Management School ( email )

Department of Accounting and Finance
Lancaster, LA1 4YX
United Kingdom

Nhat (Nate) Q. Nguyen

Colorado State University ( email )

258 Rockwell Hall
College of Business
Fort Collins, CO 80523
United States
970-491-0512 (Phone)

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