Abstract: This study examines the influence of the R&D expenditure capitalization in China in 2007(from expensing to conditional capitalization) on the valuation role of accounting information from the value relevance perspective. We employ the Price Model and the Return Model, a Diff-in-Diff method and four definitions to set up treatment groups (firms affected by capitalization) and control groups (firms not affected by capitalization). Our results show that the R&D expenditure capitalization enhanced the relationship of accounting information with firm value, and this enhancement only exists among firms with comparatively low accounting quality and non-state-owned enterprises. This paper shows that R&D expenditure capitalization has promoted the valuation role of accounting information and led to positive economic consequences.

Key words: new accounting standards, R&D expenditure capitalization, value relevance, accounting quality