On the Market Reaction to Capitalization of R&D Expenditures: Evidence from ChiNext.

Based on 2009–2016 ChiNext data, this paper studies the relation between a company's R&D expenditure capitalization and its business performance and the external market response to this decision. We find that, the more a company's R&D expenditure is capitalized, the better its performance will be. In addition, the regression on the short-term market reaction shows that the increment of the development expenditure cannot lead to a direct market response. The regression results on the long-term market performance indicate that the market accepts the lagging of the R&D achievements and anticipates more intangible assets could be converted from these achievements. Overall, our results provide evidence that only the R&D expenditures that really form the intangible assets reflect the value of the capitalization and facilitate the sustainable innovation of ChiNext-listed companies. [ABSTRACT FROM AUTHOR]