در تجاری کردن بین منافع آتی و ریسک تحقیق و توسعه: دیدگاه دارندگان اوراق قرضه

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.

Accounting for R&D follows Statement of Financial Accounting Standards (SFAS) No. 2, which mandates that R&D outlays be expensed as incurred (the expensing rule, hereafter). Critics point to evidence that R&D expenditures, on average, generate future benefits (e.g., Hirschey and Weygandt, 1985; Cockburn and Griliches, 1988; Bublitz and Ettredge, 1989; Lev and Sougiannis, 1996); they contend that recognition of value-creating R&D investments as assets will enhance the value-relevance of financial statements (Elliott and Jacobson, 1991; Chambers et al., 1998). On the other hand, the Financial Accounting Standards Board (FASB (1974), Financial Accounting Standards Board (FASB (1978), Financial Accounting Standards Board (FASB (1980) and Financial Accounting Standards Board (FASB (1985) and proponents of the expensing rule are more concerned with the measurement error of expected R&D benefits resulting from the high degree of uncertainty in R&D outcomes; they argue that recognizing such unreliable and noisy estimates in the financial statements may mislead investors and creditors (e.g., CFO, February 1999, p. 30). The debate about the alternative accounting treatments of R&D investments reflects trade-offs between the future benefits of RD and its riskiness.1 In general, if the uncertainty regarding future benefits is not so high that it disqualifies the measurability criterion of asset recognition, then one may argue in favor of capitalizing R&D expenditures (as is typical for tangible investments). Conversely, if future outcomes are risky and unpredictable, the expensing treatment may be warranted.2 The extant R&D literature generally has focused on the benefits aspect of R&D by examining the relation between R&D variables and equity valuation, that is, the value-relevance of R&D.3 Researchers have interpreted the significantly positive association between R&D constructs and stock prices/returns as evidence that R&D investments do generate net future benefits (e.g., Hirschey and Weygandt, 1985; Cockburn and Griliches, 1988; Bublitz and Ettredge, 1989; Lev and Sougiannis, 1996). This interpretation, however, is questionable because the benefits and the riskiness of R&D have impacts in the same direction on the equity valuation of levered firms ( Merton 1973 (1973) and Merton 1973 (1974)). In other words, an increase 4 in the uncertainty of future cash flows that is attributed to R&D investments will increase the stock price, even if the expected future cash flows remain unchanged. Hence, the existing equity-based research tends to overstate the expected future benefits of R&D. 5 Furthermore, the existing literature primarily examines R&D benefits, and, thus, sheds little light on the benefit-risk trade-off. This paper contributes to the R&D literature by assessing which effect dominates, the future benefits of R&D or its riskiness, in the context of the bond market. The advantage of using the bond market setting for this assessment is that, in contrast to their same directional effects on equity value, changes in the mean and the variance of future cash flows from investments affect bond prices in opposite directions (Merton 1973 (1973) and Merton 1973 (1974)). This offsetting feature of mean and variance effects on bond valuation provides a unique setting to estimate the trade-off between the benefits and risks of R&D investments. Specifically, an increase in the mean of future cash flows arising from the firm's investments increases the value of the firm's bonds by reducing the probability of default. On the other hand, an increase in the variance of future cash flows decreases the value of the firm's bonds by increasing the probability of default (see Section 2 for more discussion). Relying on the implications of this theory, I examine the associations among bond risk measures and R&D investments to determine whether their mean effect (expected future benefits) or their variance effect (riskiness) is more significant in pricing bonds. In general, from the perspective of bondholders, a negative correlation between bond risk parameters and R&D investments would indicate a stronger mean effect; that is, the expected future benefits of R&D investments are more than enough to compensate for the added risk of R&D. Conversely, a positive correlation would imply a stronger variance effect that swamps the mean effect of future benefits from R&D investments. The bondholders’ perspective is important for two additional reasons. First, creditors are one of the key constituents served by financial reporting.6 However, no research has been conducted, to my knowledge, on bondholders’ assessments of R&D investments. Second, among the three primary external financing channels—the issuance of bonds, common stocks, and preferred stocks, the bond market remains the most significant external financing channel.7 Given the significance of debt financing to the U.S. economy, the perspective of bondholders on R&D investments should be an important consideration in setting accounting standards and in disclosure regulations. Based on a sample of 132 new issues of industrial bonds issued between 1991 and 1994 by firms in five R&D-intensive industries, this study documents significantly positive contemporaneous correlations between R&D investments and both bond default risk (proxied by Moody's bond ratings) and risk premium, controlling for other common bond risk determinants. This result remains unchanged when the sample is augmented by bonds issued in the late 1980s or by bonds issued for firms in non-R&D-intensive industries. In addition, the results are also robust to alternative measures of the firm's investments in R&D. These findings suggest that, from the viewpoint of creditors, the adverse effect caused by the high volatility and uncertainty (the variance effect) of the firm's R&D activities outweighs, on average, the favorable impact of the firm value increments (the mean effect). That is, even when the expected mean value of the firm's R&D outlays is positive, it may not necessarily overcome the huge variance of the future cash flows. Therefore, for creditors, R&D expenditures reflect less asset-like characteristics but more risk attributes. This result contrasts with the implications of equity-based studies that suggest equity investors consider R&D investments as assets (e.g. Lev and Sougiannis, 1996). While the results are not sensitive to the choice of the alternative R&D measures, the R&D variables constructed from multi-year observations demonstrate incremental power over the naı̈ve R&D measure—annual R&D expenditures—in explaining bond risk premium. Moreover, this study documents that the trade-offs between the benefits and risks of R&D vary across industries, implying differential impacts of R&D investments on bond risk measures. Finally, this paper contributes to bond pricing literature in finance by examining the role of R&D variables in bond ratings and risk premium. Investment in R&D alone explains approximately 80% of cross-sectional variations in bond ratings and risk premium. Inclusion of other bond risk determinants does not appear to dampen the significance of the coefficients of R&D investment. This evidence demonstrates that R&D variables, overlooked by the bond literature, play a crucial role in bond valuation. Furthermore, since the R&D constructs turn out to be correlated with some of the common bond risk determinants, inclusion of R&D variables in bond pricing models mitigates the problem of correlated omitted variables. The remainder of the paper is organized as follows. Section 2 discusses option pricing theory and its implications for the paper's research design. Research methodology is laid out in Section 3. The sample selection appears in Section 4. The empirical results are presented in Section 5. Section 6 contains concluding remarks.

The debate surrounding the accounting for R&D expenditures evolves around the trade-off between the expected benefits of the expenditures—which might qualify them as an asset, and the uncertainty surrounding these benefits—which precludes them from being recorded as assets. This study contributes to the debate on R&D accounting by assessing this benefit-risk trade-off from the perspective of bondholders. The results indicate that R&D investments are significantly positively associated with bond default risk and bond risk premium, controlling for other bond risk determinants. This evidence suggests that, from the perspective of bondholders, the risks and uncertainties of R&D appear to dominate its expected future benefits. Hence, creditors view R&D investments as less asset-like in nature and see them more as useful measures of risk. Furthermore, this study contributes to the bond pricing literature by showing the significant incremental explanatory power of R&D constructs over common bond risk determinants for bond valuation. Given the increasing importance of R&D investments, the finding in this study highlights the necessity of including R&D variables, heretofore unacknowledged in existing bond research, as one of the key bond risk determinants. Several caveats are in order. First, the finding that, for bondholders, the uncertainty effect of R&D investments dominates their expected benefits effect does not imply that R&D investments, on average, generate negative net present value. This study does not address the question of whether R&D investments, on average, increase the total value of the firm (the sum of the debt and equity). 19 Second, the larger impact of R&D risk on bond valuation derives in part from the perception that R&D intangibles generally have negligible liquidation values and thus have less collateral value than tangible assets. Third, a larger portion of R&D firms do not issue bonds, hence they are not included in the sample; the results of this study hold only for the sample of the R&D bond issuers. Creditors’ assessment on the risk-benefit trade-off for the R&D firms that do not use public bond financing awaits future research. Therefore, although the findings of this study add a new dimension to the debate over R&D accounting from the perspective of an important class of stakeholders—bondholders, the evidence itself is not sufficient to buttress the FASB's expensing R&D rule.