The Change in Rating Standard on R&D Expenditures

초록

[Purpose] We investigate the change in the relation between corporate credit ratings and R&D expenses. [Analysis strategy] Using U.S. firms with a credit rating from 1987 to 2013, we regress corporate credit rating on the interaction term between the trend variable and R&D expenses. [Analysis results] We find that the negative relation between credit ratings and R&D expenditures in early periods has become weaker over time. We also find that the positive relation between R&D expenditures and earnings volatility for sample firms has become weaker. Thus, rating agencies seem to understand the change in the association between R&D expenditures and uncertainty, and have modified their negative outlook for R&D expenditures accordingly. Additional results suggest that the weaker negative relation between credit rating and R&D expenditures in later years is unlikely to be attributable to the change in sample composition, the recognition of intangible assets and the change in the profitability of R&D expenditures. [Implication] Rating agency seems to adjust their U.S. corporate credit rating with an advance of knowledge economy.