Abstract
Capitalisation of development costs mandated under IAS 38 is an important accounting issue conveying a signal to users of accounting information regarding future economic benefits. Using a longitudinal sample of UK firms, firstly, we examine the adverse effect of CEO overconfidence levels on the association between capitalised development costs and future economic benefits, proxied by cash flows. Secondly, we examine the moderating influence of board gender diversity on this association. We find that the association between capitalised development costs and future cash flows, while positive, is significantly weaker for firms with higher levels of CEO overconfidence, implying that the signalling effect of capitalisation is diluted. Moreover, our results show that board gender diversity significantly moderates the managerial bias associated with high overconfidence levels, helping to restore the neutrality of accounting and the strength of signalling with regards to future economic benefits.
| Original language | English |
|---|---|
| Article number | 101426 |
| Journal | British Accounting Review |
| Volume | 56 |
| Issue number | 6 |
| Early online date | 17 Jun 2024 |
| DOIs | |
| Publication status | Published - 30 Nov 2024 |
Data Availability Statement
The authors do not have permission to share data.Acknowledgements
We are grateful for constructive and helpful comments on earlier versions of this work to the associate editor, two anonymous reviewers, Seraina Anagnostopoulou, Fani Kalogirou, Lingling Wang, and Robert Wilbanks and participants of the AAA Spark Meeting of Regions (June 2023, Virtual), the 14th World Congress of Accounting Educators and Researchers (December 2022, Paris, France), the research seminar at Nottingham Business School (November 2022, Nottingham, UK), the 16th Workshop on European Financial Reporting (September 2021, Glasgow, UK), the 2nd Financial Management and Accounting Research Conference (September 2021, Paphos, Cyprus), the 11th National Conference of the Financial Engineering and Banking Society (December, 2021, Athens, Greece). We thank Boglarka Dely and Ahmed Prapan for excellent research assistance and the Adam Smith Observatory of Corporate Reporting Practices for financial support. Lastly, we thank Fatima Almaghrabi for her help with performing the transformed regressions. Any errors which remain are our responsibility alone.Funding
We are grateful for constructive and helpful comments on earlier versions of this work to the associate editor, two anonymous reviewers, Seraina Anagnostopoulou, Fani Kalogirou, Lingling Wang, and Robert Wilbanks and participants of the AAA Spark Meeting of Regions (June 2023, Virtual), the 14th World Congress of Accounting Educators and Researchers (December 2022, Paris, France), the research seminar at Nottingham Business School (November 2022, Nottingham, UK), the 16th Workshop on European Financial Reporting (September 2021, Glasgow, UK), the 2nd Financial Management and Accounting Research Conference (September 2021, Paphos, Cyprus), the 11th National Conference of the Financial Engineering and Banking Society (December 2021, Athens, Greece). We thank Boglarka Dely and Ahmed Prapan for excellent research assistance and the Adam Smith Observatory of Corporate Reporting Practices for financial support. Lastly, we thank Fatima Almaghrabi for her help with performing the transformed regressions. Any errors which remain are our responsibility alone.
| Funders | Funder number |
|---|---|
| Nottingham Business School |
Keywords
- Board gender diversity
- Capitalisation
- Development costs
- Overconfidence
- Research and development (R&D)
ASJC Scopus subject areas
- Accounting