Accounting Comparability and Corporate Innovative Efficiency

Chircop, Justin and Collins, Daniel and Hass, Lars Helge and Nguyen, Nhat (2020) Accounting Comparability and Corporate Innovative Efficiency. The Accounting Review, 95 (4). 127–151. ISSN 0001-4826

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We predict that a firm's greater accounting comparability with its industry peers facilitates its learning from those peer firms' research and development (R&D) investments, allowing that firm to have greater innovative efficiency. We estimate accounting comparability using pro-forma capitalized R&D earnings that link lagged R&D expenditures to future profitability employing the Almon (1965) distributed lag model. We find that greater accounting comparability leads to enhanced ability to predict future cash flows generated by R&D investments of peer firms. In the cross-section, we observe the relation between accounting comparability and innovative efficiency is stronger if peer firms exhibit higher accounting (accrual) quality and are themselves successful innovators. In sum, this study shows that a shared qualitative characteristic of accounting, namely accounting comparability, is positively associated with innovative efficiency.

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Journal Article
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The Accounting Review
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24 Sep 2019 10:35
Last Modified:
22 Sep 2023 00:41