Financial Reporting Discretion and Voluntary Disclosure : Corporate Research and Development Expenditure in Australia

The aim of this paper is to explain Australian Ramp;D capitalization and voluntary disclosure. It is argued that the discretionary choices available to management in Australia with respect to the accounting for and the disclosure of Ramp;D expenditure and activities can be explained by the reduction of information asymmetries and agency costs. The results confirm that three aspects of information asymmetry investigated are important in explaining the discretionary captialization of Ramp;D expenditure: research intensity; the use of Ramp;D financing arrangements; and the percentage of subsidiaries not wholly owned. Furthermore, research intensity, and the use of Ramp;D financing arrangements are significant in explaining voluntary disclosure of Ramp;D expenditure and activities. These results are robust to the inclusion of controls for other economic characteristics of the firm including share issue, size, accounting performance, leverage, proprietary costs and tax status