DID ACQUIRING FIRMS TAKE EXCESSIVE IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES IN THE 1990S?
NSWP#2005.101 Authors: Thomas D. Dowdell, Steve C. Lim, and Eric Press; We acknowledge the helpful research assistance of Scott Boyd, Oladayo Famakinwa, and Margaret Pittman. Abstract In-process research and development (IPRD) is the value allocated to incomplete research and development projects in acquisitions treated as purchases, and charged to expense by the acquirer at the acquisition date. In this paper, we investigate the SEC’s charge that some firms managed their earnings by re-cording excessive IPRD. We assess excessive IPRD by developing a measure of normal IPRD, and com-pare IPRD charged in acquisitions to the R&D expenses reported previously by the firms acquired. We observe a decrease in the portion of purchase prices assigned to IPRD following SEC scrutiny. We assess whether the decreased charges were related to changes in types of firms acquired, a decrease in R&D intensity, and the advent of SFAS No. 142, rather than changes in corporate accounting policy given SEC scr
