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INTRODUCTION There appears to be widespread concern that short-termism is rampant within the U K economy (and, perhaps, that of the USA).' One claimed manifestation of such short-termism is a failure to invest sufficiently in research and development and, as a consequence, a failure to secure the longterm industrial future of both individual companies within the U K economy and the U K economy itself. One reason for such an under-investment, it is argued, is the failure of the U K capital market to adequately value expenditures in research and development. Under another argument, inadequate capitalisation of research and development expenditures arises because the market is fixated on accounting earnings and, given that the revised version of SSAPIS has required that research and development expenditures be expensed rather than capitalised in the measurement of such earnings since 1990, as research and development expenditures increase so share prices fall. Naturally, if such is the case, it is open to speculation as to whether the accounting treatment drives the market valuation of research of development expenditures or whether the rational market valuation of research and development expenditures drives the accounting treatment. Nonetheless, in rational economic markets, if research and development
Journal of Business Finance & Accounting – Wiley
Published: Mar 1, 1996
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