Measuring innovation and navigating its unique information issues: A review of the accounting literature on innovation

Abstract

We review the accounting literature on innovation, focusing on the economic attributes of innovation that collectively differentiate innovation from other assets: novelty, nonrivalry, and partial excludability. These attributes help innovation drive economic growth but create unique information-based challenges that accounting information and researchers are well suited to address. We discuss the definition and measurement of innovation and highlight common mistakes researchers make when measuring innovation and when using sources of plausibly exogenous variation. We then review the accounting literatures on the disclosure, management, financial reporting, taxation, and contracting and financing of innovation. For each of these literatures we identify challenges and opportunities for future research.