On the trade-off between the future benefits and riskiness of R&D: a bondholders’ perspective

• Autores: Charles Shi
• Localización: Journal of accounting and economics, ISSN 0165-4101, Vol. 35, Nº. 2, 2003, págs. 227-254
• Idioma: inglés
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• Resumen

  • Existing studies on the value-relevance of R&D tend to overstate the R&D benefits and shed little light on the trade-off between the R&D benefits (mean effect) and their riskiness (variance effect). This study shows that the variance effect of R&D is on average more significant than their mean effect in bond valuation. Hence, for creditors, the R&D risk dominates their benefits. Furthermore, this study documents that R&D measures alone explain approximately 80% of cross-sectional variations in bond ratings and risk premium. These findings contribute to the debate over R&D accounting and the bond pricing literature.