The Stock Market Valuation of Research and Development Expenditures

We examine whether stock prices fully reflect the value of firms' intangible assets, focusing on research and development (R&D). Since intangible assets are not reported on financial statements under current U.S. accounting standards and R&D spending is expensed, the valuation problem may be especially challenging. Nonetheless we find that historically the stock returns of firms doing R&D on average matches the returns on firms with no R&D. For companies engaged in R&D, high R&D intensity has a distinctive effect on returns for two groups of stocks. Within the set of growth stocks, R&D-intensive stocks tend to out-perform stocks with little or no R&D. Companies with high R&D relative to equity market value (who tend to have poor past returns) show strong signs of mis-pricing. In both cases the market apparently fails to give sufficient credit for firms' R&D investments. Our exploratory investigation of the effects of advertising on returns yields similar results. We also provide evidence that R&D intensity is positively associated with return volatility, everything else equal. Insofar as the association reflects investors' lack of information about firms' R&D activity, increased accounting disclosure may be beneficial.

R&D Reporting Biases and their Consequences

The immediate expensing of R&D expenditures is often justified by the conservatism principle. However, no accounting procedure consistently applied can be conservative throughout the firm' life. We ask the following questions: (a) When is the expensing of R&D conservative and when is it aggressive, relative to R&D capitalization? and (b) What are the capital market implications of these reporting biases? To address these questions we construct a model of profitability biases (differences between reported profitability under R&D expensing and capitalization) and show that the key drivers of the reporting biases are the differences between R&D growth and earnings growth (momentum), and between R&D growth and return on equity (ROE). Companies with a high R&D growth rate relative to their profitability (typically early cycle companies) report conservatively, while firms with a low R&D growth rate (mature companies) tend to report aggressively under current GAAP. Our empirical analysis, covering the period 1972-2003, generally supports the analytical predictions. In the valuation analysis we find evidence consistent with investor fixation on the reported profitability measures: we detect undervaluation of conservatively reporting firms and overvaluation of aggressively reporting firms. These misvaluations appear to be corrected when the reporting biases reverse from conservative to aggressive and vice versa

Accounting Estimates: Pervasive, Yet of Questionable Usefulness

Estimates and projections are embedded in most financial statement items. These estimates potentially improve the relevance of financial information by providing managers the means to convey to investors forward-looking, inside information (e.g., on future collections from customers via the bad debt provision, or on expected assets' cash flows reflected in impairment charges). On the other hand, the quality of financial information is compromised by: (i) the increasing difficulty of making reliable forecasts in a fast-changing, often turbulent economy, and (ii) the frequent managerial misuse of estimates to manipulate financial data. Given the prevalence of estimates in accounting data, whether these opposing forces result in an improvement in the quality of financial information or not is arguably the most fundamental issue in accounting. We examine in this study the contribution of accounting estimates embedded in accruals to the quality of financial information by focusing on the major use of this information by investors - the prediction of enterprise cash flows and earnings. Our extensive tests, reflecting both the statistical and economic significance of estimates, indicate that, by and large, accounting accruals and the estimates they embed do not improve the quality of financial information in terms of enhancing the prediction of enterprise performance. Accruals do not improve the prediction of cash flows, beyond that achieved by current cash flows, and improve only marginally the prediction of earnings. This latter improvement, however, appears to be economically insignificant. Thus, the objective difficulties of generating reliable estimates and projections in a volatile economy, and their frequent misuse by managers appear to offset the positive role of estimates in conveying forward looking information to investors

R&D Reporting Biases and their Consequences

The immediate expensing of R&D expenditures is often justified by the conservatism principle. However, no accounting procedure consistently applied can be conservative throughout the firm' life. We ask the following questions: (a) When is the expensing of R&D conservative and when is it aggressive, relative to R&D capitalization? and (b) What are the capital market implications of these reporting biases? To address these questions we construct a model of profitability biases (differences between reported profitability under R&D expensing and capitalization) and show that the key drivers of the reporting biases are the differences between R&D growth and earnings growth (momentum), and between R&D growth and return on equity (ROE). Companies with a high R&D growth rate relative to their profitability (typically early cycle companies) report conservatively, while firms with a low R&D growth rate (mature companies) tend to report aggressively under current GAAP. Our empirical analysis, covering the period 1972-2003, generally supports the analytical predictions. In the valuation analysis we find evidence consistent with investor fixation on the reported profitability measures: we detect undervaluation of conservatively reporting firms and overvaluation of aggressively reporting firms. These misvaluations appear to be corrected when the reporting biases reverse from conservative to aggressive and vice versa

Novel Drug 2-benzoyl-3-phenyl 6,7-dichloroquinoxaline 1,4-dioxide Induces Colon Cancer Cell Apoptosis Through HIF-1α Pathway

Recent developments in the field of cancer genomics have shown transcription factor HIF-1α as a major player in the survival and proliferation of colorectal tumors. Hypoxia targeted drug engineering has led to significant advancements in cancer treatments as a method of directly utilizing the hypoxic regions against the tumor. Novel drug DCQ (2-benzoyl-3-phenyl 6,7-dichloroquinoxaline 1,4-dioxide) has shown promising anti-tumor results in-vitro and in-vivo. The purpose of this study was to utilize a tumor xenograft and genetic mouse model of colorectal cancer to investigate the safety, clinical effectiveness, and mechanism of action of DCQ. Methods: 10 week old Balb/c mice were injected subcutaneously with 2 million CT-26 cells and were monitored for tumor growth over 14 days before receiving treatment. Apcmin/+ mice were clinically evaluated from 8 weeks of age and began treatments at 16 weeks of age. DCQ treatment given at a 17mg/kg dose and 100μL DMSO injection as control. Injections were given bi-weekly over a four week period. Results: DCQ caused significant decrease in tumor weight (p\u3c0.05) and final tumor area (p\u3c0.05) in Balb/c mice at time of sacrifice than control and Apcmin/+ mice showed significantly lower clinical score after 1 week of therapy along with decreased large tumor size (p\u3c0.05) and number (p\u3c0.05). Histological analysis showed increased total apoptotic area (p\u3c0.05) in tumor tissue sections and tumor specific apoptosis in colon tissue in both models. Western blot analysis of Balb/c showed a decreased nuclear expression of HIF-1α (p\u3c0.05) and increased expression of pro-apoptotic genes dephosphorylated-Bad (p\u3c0.001), cleaved caspase-9 (p\u3c0.05), and Bax (p\u3c0.05) paralleled with a decrease in anti-apoptotic Bcl-2 gene (p\u3c0.05). Conclusions: DCQ induces tumor specific apoptosis through mechanisms involving down regulation of HIF-1α and increased intracellular apoptosis in Balb/c mice and Apcmin/+ mice. Novel drug DCQ may potentially have use as a chemotherapeutic agent to reduce the pathology of sporadic intestinal and colorectal cancers

The Use of Natural Anthraquinone Emodin as a Primary and Complementary Therapeutic in the Treatment of Colorectal Cancer

5 Fluorouracil (5FU) chemotherapy is widely used in the treatment of colorectal cancer (CRC), and has been the first-choice chemotherapy drug for CRC for many years. However, nearly 10% of patients receiving chemotherapy die during the first 30 days of treatment. Further, it is estimated that 70% of surviving patients will develop non-specific toxicities as a result of chemotherapy treatment. We characterize these toxicities in an animal model of chemotherapy treatment and show that perturbations in the gut microbiome might be exacerbate the prolonged effects of chemotherapy. A compound that could attenuate the multiple non-selective toxicities associated with chemotherapy could have great clinical potential. Emodin is a trihydroxy-anthraquinone found in several Chinese herbs, including Rheum palmatum and Polygonum multiflorum. Emodin has been shown to attenuate the severity of multiple experimental disease models including arthritis, liver damage, atherosclerosis, myocardial ischemia, and cancer by reducing the inflammatory cascades associated with these conditions. We illustrate that emodin is poorly absorbed when given orally or intraperitoneally and is cleared from systemic circulation by 12 hours. However, we did discover that emodin is more bioavailable in female mice 1 hour after dosing. We also demonstrate that emodin is safe in mice when given through the diet for 3 months and does not cause any physiological or pathological perturbations. When pairing emodin with 5FU, we were able to attenuate functional toxicities associated with chemotherapy and ameliorate the lymphocytopenia associated with chronic and acute chemotherapy. Further, we demonstrate that emodin can improve gut resilience to 5FU and reduce aberrations in bacterial spatial arrangement. In addition, we examined the ability for emodin to be used as a preventative treatment for colorectal and intestinal cancer. We show that emodin treatment reduces tumor burden in both the AOM/DSS and Apcmin/+ models of sporadic cancer development. In the AOM/DSS model we show that emodin reduces pro-tumorigenic M2-type macrophages in the colon. Further, we show that there is amelioration of the pro-inflammatory niche that exists in the bone marrow which might contribute to the improved survival outcome and quality of life during cancer treatment. The findings presented in this document show significant promise for the potential use of emodin as a primary and complementary therapeutic in the treatment of colorectal cancer

Accounting Estimates: Pervasive, Yet of Questionable Usefulness

Estimates and projections are embedded in most financial statement items. These estimates potentially improve the relevance of financial information by providing managers the means to convey to investors forward-looking, inside information (e.g., on future collections from customers via the bad debt provision, or on expected assets' cash flows reflected in impairment charges). On the other hand, the quality of financial information is compromised by: (i) the increasing difficulty of making reliable forecasts in a fast-changing, often turbulent economy, and (ii) the frequent managerial misuse of estimates to manipulate financial data. Given the prevalence of estimates in accounting data, whether these opposing forces result in an improvement in the quality of financial information or not is arguably the most fundamental issue in accounting. We examine in this study the contribution of accounting estimates embedded in accruals to the quality of financial information by focusing on the major use of this information by investors - the prediction of enterprise cash flows and earnings. Our extensive tests, reflecting both the statistical and economic significance of estimates, indicate that, by and large, accounting accruals and the estimates they embed do not improve the quality of financial information in terms of enhancing the prediction of enterprise performance. Accruals do not improve the prediction of cash flows, beyond that achieved by current cash flows, and improve only marginally the prediction of earnings. This latter improvement, however, appears to be economically insignificant. Thus, the objective difficulties of generating reliable estimates and projections in a volatile economy, and their frequent misuse by managers appear to offset the positive role of estimates in conveying forward looking information to investors

R&D Reporting Biases and their Consequences

The immediate expensing of R&D expenditures is often justified by the conservatism principle. However, no accounting procedure consistently applied can be conservative throughout the firm' life. We ask the following questions: (a) When is the expensing of R&D conservative and when is it aggressive, relative to R&D capitalization? and (b) What are the capital market implications of these reporting biases? To address these questions we construct a model of profitability biases (differences between reported profitability under R&D expensing and capitalization) and show that the key drivers of the reporting biases are the differences between R&D growth and earnings growth (momentum), and between R&D growth and return on equity (ROE). Companies with a high R&D growth rate relative to their profitability (typically early cycle companies) report conservatively, while firms with a low R&D growth rate (mature companies) tend to report aggressively under current GAAP. Our empirical analysis, covering the period 1972-2003, generally supports the analytical predictions. In the valuation analysis we find evidence consistent with investor fixation on the reported profitability measures: we detect undervaluation of conservatively reporting firms and overvaluation of aggressively reporting firms. These misvaluations appear to be corrected when the reporting biases reverse from conservative to aggressive and vice versa