The positive externalities of IFRS R&D capitalization: enhanced voluntary disclosure

Ester Chen, Ilanit Gavious, Baruch Lev

Research output: Contribution to journalArticlepeer-review

31 Scopus citations


Studies comparing IFRS with U.S. GAAP generally focus on differences in the attributes and consequences of the recognized financial items. We, in contrast, focus on voluntary disclosure resulting from arguably the most significant difference between IFRS and GAAP: the capitalization of development costs—the “D” of R&D—required by IFRS but prohibited by GAAP. Using a sample of Israeli high-technology and science-based firms, some using IFRS and others U.S. GAAP, we document a significant externality of IFRS development cost capitalization in the form of extensive voluntary disclosure of forward−looking information on product pipeline development and its expected consequences. We show that this disclosure is value-relevant over and above the mandated financial information, including the capitalized R&D asset. We also show that the capitalized development costs (an asset) is highly significant in relation to stock prices, and enhances the relevance of the voluntary disclosures.

Original languageEnglish
Pages (from-to)677-714
Number of pages38
JournalReview of Accounting Studies
Issue number2
StatePublished - 1 Jun 2017


  • GAAP
  • IFRS
  • R&D capitalization
  • Voluntary disclosure

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting (all)


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