Difference among countries

To find evidence for hypotheses H3 and H4 the same approach was used as in hypotheses H1B. The data was first ran together and then analysed separately according to country, capitalisers and expensers as shown in table 3.

There was no evidence of R&D to be value relevant at all when all data was ran together. The only variable to come near significance was the level of research and development (LExpR&D; t: 1,733 Sig.: 0,094). The same variable seems to be value relevant for companies that only capitalise as do the variables adjusted earnings per share and the change in other intangible assets (LExpR&D; t: 2,080 Sig.: 0,048; ?AEPS; t: 2,778 Sig.: 0,010; ?IALRD; t: 2,274 Sig.: 0,032). For companies that only expense only the level and change of adjusted earnings per share seems to be value relevant (LAEPS; t: 2,083 Sig.: 0,044; ?AEPS; t: 2,345 Sig.: 0,025).

For all data of the Netherlands the change of capitalised R&D shows negative value relevancy (?CapR&D; t: -2,431 Sig.: 0,028). Only the Dutch companies that capitalise show any relevancy towards R&D. For these companies the change in capitalised R&D, the level and the change in adjusted earnings and the level of R&D expense is value relevant (?CapR&D; t: -3,235 Sig.: 0,005; LAEPS; t: 4,080 Sig.: 0,001; ?AEPS; t: 2,944 Sig.: 0,010; LExpR&D; t: 1,937 Sig.: 0,071). Investors in Dutch companies seem to be more hesitant towards the capitalisation of R&D (negatively value relevant) than towards expensing (positively value relevant). If these companies are generating losses these results could be explained by the same theory as mentioned for H2), investors could explain losses by the level of R&D expense but when a company would start capitalising more, the losses become harder to explain.

For Dutch companies that only expensed there were no significant results relating to the R&D. For these companies only the level and the change of adjusted earnings per share appear to be positively and negatively value relevant (LAEPS; t: - 3,014 Sig.: 0,012; ?AEPS; t: -1,948 Sig.: 0,077).

The results for the English companies seem to show a higher level of value relevance. For all English companies the change in capitalised R&D, adjusted

earnings per share and other intangible assets are positively significant yet the level of R&D expense is negatively significant (?CapR&D; t: 2,760 Sig.: 0,028; ?AEPS; t: 2,325 Sig.: 0,053; LExpR&D; t: -2,431 Sig.: 0,045; ?IALRD; t: 2,260 Sig.: 0,058). These figures can be interpreted by a more common theory. The capitalisation would insinuate future positive gains explaining the positive value relevance investors give the variable. The expensing of R&D could insinuate that investors do not expect any future gains from these investments resulting in negative value relevance.

The data ran for the English companies that capitalise show negative value relevance for the change in R&D expense (?ExpR&D; t: -2,276 Sig.: 0,072) but show no significant result for the capitalisation of R&D. The unsatisfactory results could be caused by the small number of companies in the UK that capitalise resulting in a small sample. When using such a small sample certain variables can influence the results more than when used in bigger samples.

4,760Sig.: 0,000; ?AEPS; t: 4,760 Sig.: 0,001; LExpR&D; t: 5,078 Sig.: 0,000 ; ?ExpR&D; t: 5,278 Sig.: 0,000). The high significance of expensed R&D could be explained through an earlier mention theory. If a company is generating losses the expensing of R&D could be interpreted as a reason for these losses and not seen as a real loss. Companies that expense on a regular basis could signal to the investors that they have an innovative strategy focussing on new ideas whic h could possibly result in future gains. These gains may not be directly related to the original investments but these investments could instigate positive developments for the entire company.

The results do not provide a clear answer to the hypothesis whether investors in the Netherlands value R&D the same as investors in other countries. From the data we can conclude that investors in Dutch companies have a negative reaction to the capitalisation of R&D and seem to find expensing rather immaterial. Investors in English companies show opposite results finding expensed R&D value relevant and showing unclear results for capitalisation. To obtain a better analysis the data could be segregated once more into profitable and non profitable companies however the small amount of observations left in each sample would not provide significant results.

The results seem to overthrow hypotheses H4, expensed R&D has come out to be more value relevant than capitalised R&D when looking at all the data put

together. In the Netherlands the capitalised R&D was even negatively value relevant contrasting with the original expectations. To decide whether R&D is more value relevant when expensing or capitalising other variables need to be considered. The data suggest that the profitability and level of R&D investment have an influence on the relevance investors give to R&D. An explanation could be that investors follow a company’s strategy whether it is expensing or capitalising and only react, positively or negatively, when figures do not concur with the strategy.

The initial outcomes of this empirical study have not been as hypothesised. However, when separating the data further according to the variables from the conceptual model the results become more significant. Overall the value relevance reacts strongly to the different assembly of the accounting variables within a firm. Further research with a larger number of observations could provide more substantive evidence.

Table 6.3: International comparison

Variables NL + UK The Netherlands UK

All Data All Data All Data

t Sig. t Sig. t Sig.

Rjt -0,337 0,739 -0,670 0,513 1,210 0,266 ?CapR&D -1,093 0,283 -2,431 0,028 ** 2,760 0,028 ** LAEPS 0,413 0,683 1,515 0,151 -1,459 0,188 ?AEPS 0,777 0,443 1,884 0,079 * 2,325 0,053 * LExpR&D 1,733 0,094 * 1,216 0,243 -2,431 0,045 ** ?ExpR&D 0,347 0,731 0,465 0,648 1,436 0,194 ?IALRD 0,972 0,339 -0,493 0,629 -2,260 0,058 * R2 0,208 0,62 0,528 N 103 48 54

Variables NL + UK The Netherlands UK

All Data Cap. Only Capitalise Only Capitalise

t Sig. t Sig. t Sig.

Rjt -1,419 0,168 -0,395 0,698 -0,743 0,491 ?CapR&D -1,487 0,149 -3,235 0,005 *** 0,699 0,516 LAEPS -0,690 0,497 4,080 0,001 *** -0,462 0,663 ?AEPS 2,779 0,010 *** 2,944 0,010 *** 1,147 0,303 LExpR&D 2,080 0,048 ** 1,937 0,071 * 0,756 0,484 ?ExpR&D 0,693 0,495 -0,043 0,966 -2,276 0,072 * ?IALRD 2,274 0,032 ** -1,588 0,132 1,899 0,116 R2 0,49 0,811 0,646 N 33 23 12 Variables NL + UK Netherlands UK

All Data Exp. Only Expense Only Expense

t Sig. t Sig. t Sig.

Rjt -0,420 0,677 -0,448 0,663 -2,818 0,011 ** ?CapR&D - - - - LAEPS 2,083 0,044 ** 3,014 0,012 ** 4,760 0,000 *** ?AEPS -2,345 0,025 ** -1,948 0,077 * 4,142 0,001 *** LExpR&D 0,038 0,970 -0,438 0,670 5,078 0,000 *** ?ExpR&D -0,107 0,915 -0,749 0,469 5,278 0,000 *** ?IALRD -1,889 0,067 * -1,702 0,117 -0,888 0,385 R2 0,198 0,546 0,699 N 43 17 40

* Significant at the .1 level; ** significant at the .05 level; *** significant at the .01 level.

Rjt = a1 + ß1?(ABV)jt + ß2?(CapR&D)jt + ß3?(AEPS)jt + ß4(ExpR&D)jt + ß5? (ExpR&Djt) + ß6?(IALRD) + (ejt)

?CapR&D = First difference in the adjusted earnings per share from time t to time (t-1) deflated by opening share price, Pj(t-1)

?AEPS = First difference in the adjusted earnings before R&D expense per share from time t to time (t-1) deflated by opening share price, Pj(t-1)

LExpR&D = The level of adjusted R&D expense per share at time t deflated by opening share price, Pj(t-1)

?ExpR&D = First difference in the adjusted amount of R&D expense per share from time t to time (t-1) deflated by opening share price, Pj(t-1)

?IALRD = First difference on the adjusted book value of other intangible assets (total assets less capitalised R&D costs) per share from time t to time (t-1) deflated by opening share price, Pj(t-1)

R2 = R Square