Research Article
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Accounting Measurement of Innovation Cost and Its Impact on Firm Performance

Year 2026, Issue: 74, 21 - 33, 27.01.2026

Dunya Jalil Jaafar Almusawi

https://doi.org/10.26650/MED.1743396
https://izlik.org/JA82MT82XW

Abstract

Although innovation is widely recognized as a key driver of competitiveness and sustainable growth, its accounting measurement and impact on firm performance remain understudied, especially in emerging economies. This study examines the impact of innovation costs on firm performance, as measured by return on assets (ROA) and share price, using data from 36 Iraqi industrial and service firms listed on the Iraqi Capital Market from 2013 to 2023. Drawing on accounting and innovation theories, the study uses panel data regression analysis to determine if firms that invest more in innovation achieve better financial and market results. The findings reveal that innovation costs positively and significantly affect both the ROA and the share price, reveal that innovation spending enhances operational efficiency, profitability, and investor confidence. These results emphasize the strategic importance of recognizing innovation expenditures as value-creating investments rather than as short-term costs. This study contributes to the growing body of literature on innovation accounting in developing markets, providing practical insights for policymakers, managers, and investors. By highlighting the measurable benefits of innovation spending, the study raises awareness of the need to support innovation-driven strategies to strengthen firm performance and promote long-term economic development in Iraq and similar economies.

Keywords

Accounting Measurement Innovation Cost Firm Performance Return on Assets Share Price

References

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Year 2026, Issue: 74, 21 - 33, 27.01.2026

Dunya Jalil Jaafar Almusawi

https://doi.org/10.26650/MED.1743396
https://izlik.org/JA82MT82XW

Abstract

References

  • Acciarini, C., Cappa, F., Boccardelli, P., & Oriani, R. (2023). How can organizations leverage big data to innovate their business models? A systematic literature review. Technovation, 123, 102713. https://doi.org/10.1016/j.technovation.2023.102713 google scholar
  • Anwar, S., & Sun, S. (2024). R&D, Product and Process Innovation, and Firm Performance: A Case Study of the Chinese Firms. Arthaniti-Journal of Economic Theory and Practice. https://doi.org/10.1177/09767479241247615 google scholar
  • Arbelo, A., Arbelo-Pérez, M., & Pérez-Gómez, P. (2020). Profit Efficiency as a measure of performance and Frontier Models: A Resource-Based View. BRQ Business Research Quarterly, 24(2), 143–159. https://doi.org/10.1177/2340944420924336 google scholar
  • Asiedu, M., Nazirou, S. C. M., Mousa, D. S., Sabrina, S. J., & Rosemary, A. A. (2021). Analysis of Working Capital Sources on Firm Innovation, and Labor Productivity among Manufacturing Firms in DR Congo. Journal of Financial Risk Management, 10(02), 200–223. https://doi.org/10.4236/jfrm.2021.102012 google scholar
  • Aslan, Y., & Aygün, M. (2019). Effect of innovation on firm performance: A study on manufacturing companies in BIST. Anemon Muş Alparslan Üniversitesi Sosyal Bilimler Dergisi, 7(6), 91–109. https://doi.org/10.18506/anemon.506387">https://doi.org/10.18506/anemon.506387 google scholar
  • Audretsch, D. B., & Belitski, M. (2022). The knowledge spillover of innovation. Industrial and Corporate Change, 31(6), 1329–1357. https://doi.org/10.1093/icc/dtac035 google scholar
  • Bagna, E., Ramusino, E. C., & Denicolai, S. (2021). Innovation through Patents and Intangible Assets: Effects on Growth and Profitability of European Companies. Journal of Open Innovation Technology Market and Complexity, 7(4), 220. https://doi.org/10.3390/joitmc7040220 google scholar
  • Raheef, B. H., & Ibrahim, L. K. (2022). The role of financial innovation in Iraqi banks and its impact on financial management strategies for start-ups: An applied study. Proceedings of the Second Sharjah International Conference on Social and Human Sciences, 2(2), 65–70. UAE. google scholar
  • Bočková, N., & Meluzín, T. (2016). R&D investments as Possible Factors of Company’s Competitiveness. Acta Universitatis Agriculturae Et Silviculturae Mendelianae Brunensis, 64(6), 1857–1867. https://doi.org/10.11118/actaun201664061857 google scholar
  • Böyükaslan, A., & Aşıkoğlu, H. (2022). Does organizational culture impact on firm performance: Evidence from Turkey. Istanbul Business Research, 0(0), 0. https://doi.org/10.26650/ibr.2022.51.861397 google scholar
  • Chen, X., Xie, H., & Zhou, H. (2024). Incremental versus Radical Innovation and Sustainable Competitive Advantage: A Moderated Mediation Model. Sustainability, 16(11), 4545. https://doi.org/10.3390/su16114545 google scholar
  • Dancaková, D., & Glova, J. (2024). The Impact of Value-Added Intellectual Capital on Corporate Performance: Cross-Sector evidence. Risks, 12(10), 151. https://doi.org/10.3390/risks12100151 google scholar
  • Dancaková, D., Sopko, J., Glova, J., & Andrejovská, A. (2022). The impact of intangible assets on the market value of Companies: Cross-Sector evidence. Mathematics, 10(20), 3819. https://doi.org/10.3390/math10203819 google scholar
  • Dankwah, J. B., Nnindini, S. I., & Bukari, Z. (2023). Innovation orientation and firms’ financial performance: The moderating role of new product development. Cogent Business & Management, 11(1). https://doi.org/10.1080/23311975.2023.2292525 google scholar
  • Delgado-Verde, M., & Díez-Vial, I. (2023). New product development and supplier involvement: the role of R&D collaboration with supporting organisations. The Journal of Technology Transfer. https://doi.org/10.1007/s10961-023-09998-6 google scholar
  • Dhaigude, A. S., Gupta, N., Sardana, D., Kumar, V., & Terziovski, M. (2023). The catalytic role of “responsible investments” in innovation and firm performance link: in the context of manufacturing in Asia-Pacific. Asia Pacific Journal of Management, 41(3), 1315–1343. https://doi.org/10.1007/s10490-023-09882-9 google scholar
  • Dibie, V. M., Nto, C. P. O., Unanam, E. L., & Bassey, I. E. (2019). Effect of Product Innovation on Customer Acquisition and Retention. International Journal of Marketing and Communication Studies, 4(1), 50–62. https://www.researchgate.net/publication/356989184_Effect_of_Product_Innovation_on_Customer_Acquisition_and_Retention google scholar
  • Elkemali, T. (2024). Intangible and tangible investments and future earnings volatility. Economies, 12(6), 132. https://doi.org/10.3390/economies12060132 google scholar
  • Falahat, M., Chong, S. C., & Liew, C. (2023). Navigating new product development: Uncovering factors and overcoming challenges for success. Heliyon, 10(1), e23763. https://doi.org/10.1016/j.heliyon.2023.e23763 google scholar
  • Ferdaous, J., & Rahman, M. M. (2019). The effects of intangible assets on firm performance. American Journal of Business, 34(3/4), 148–168. https://doi.org/10.1108/ajb-11-2018-0065 google scholar
  • Giovanni, G., & Santosa, S. (2020). DO INTELLECTUAL CAPITAL AND INTANGIBLE ASSETS INFLUENCE THE FIRM VALUE? (CASE STUDY IN TRADE, SERVICE, AND INVESTMENT SECTOR IN INDONESIA). Ultima Management Jurnal Ilmu Manajemen, 12(2), 200–209. https://doi.org/10.31937/manajemen.v12i2.1703 google scholar
  • Glaeser, S., & Lang, M. (2024). Measuring innovation and navigating its unique information issues: A review of the accounting literature on innovation. Journal of Accounting and Economics, 78(2–3), 101720. https://doi.org/10.1016/j.jacceco.2024.101720 google scholar
  • Hair Jr JF, Black WC, Babin BJ, Anderson RE, Tatham R (2006). Multivariant Data Analysis. New Jersey: Pearson International Edition. google scholar
  • Hutauruk, M. R. (2024). The effect of R&D expenditures on firm value with firm size moderation in an Indonesia palm oil company. Cogent Business & Management, 11(1). https://doi.org/10.1080/23311975.2024.2317448 google scholar
  • Ibrahim, S. S. (2025). The role of financial technologies in reducing the cost of banking services: A survey study of the opinions of a sample of Iraqi university professors specialized in the financial and accounting field during 2024. Journal of Administration and Economics, 50(149), 42–52. https://doi.org/10.31272/jae.i149.1355 google scholar
  • Insee, K., & Suttipun, M. (2023). R&D spending, competitive advantage, and firm performance in Thailand. Cogent Business & Management, 10(2). https://doi.org/10.1080/23311975.2023.2225831 google scholar
  • Intara, P., & Suwansin, N. (2024). Intangible assets, firm value, and performance: does intangible-intensive matter? Cogent Economics & Finance, 12(1). https://doi.org/10.1080/23322039.2024.2375341 google scholar
  • Jerome, J. J. J., Sonwaney, V., Bryde, D., & Graham, G. (2023). Achieving competitive advantage through technology-driven proactive supply chain risk management: an empirical study. Annals of Operations Research, 332(1–3), 149–190. https://doi.org/10.1007/s10479-023-05604-y google scholar
  • Khan, M. A., Bin, M., Wang, C., Bilal, H., Khan, A. A., Ullah, I., Iqbal, A., & Rahman, M. U. (2023). Impact of R&D on Firm Performance: Do Ownership Structure and Product Market Competition Matter? SAGE Open, 13(4). https://doi.org/10.1177/21582440231199560 google scholar
  • Konak, N. F., & Kendirli, N. S. (2016). Impact of R&D Expenses on Firm Performance: Emprical Evidence From the BIST Information Technology Index. China-USA Business Review, 15(5). https://doi.org/10.17265/1537-1514/2016.05.002 google scholar
  • Kong, D., Yang, Y., & Wang, Q. (2022). Innovative efficiency and firm value: Evidence from China. Finance Research Letters, 52, 103557. https://doi.org/10.1016/j.frl.2022.103557 google scholar
  • Le, C., Nguyen, B., & Vo, V. (2023). Do intangible assets help SMEs in underdeveloped markets gain access to external finance?—the case of Vietnam. Small Business Economics, 62(2), 833–855. https://doi.org/10.1007/s11187-023-00785-z google scholar
  • Li, Q., & Gao, H. (2023). How External knowledge acquisition Contribute to Innovation Performance: A Chain Mediation model. SAGE Open, 13(4). https://doi.org/10.1177/21582440231219203 google scholar
  • Mairesse, J., & Mohnen, P. (2002). Accounting for Innovation and Measuring Innovativeness: an illustrative framework and an application. American Economic Review, 92(2), 226–230. https://doi.org/10.1257/000282802320189302 google scholar
  • Mazzi, F., Slack, R., Tsalavoutas, I., & Tsoligkas, F. (2022). Exploring investor views on accounting for R&D costs under IAS 38. Journal of Accounting and Public Policy, 41(2), 106944. https://doi.org/10.1016/j.jaccpubpol.2022.106944 google scholar
  • Mesioye, O., & Bakare, I. A. (2024). Evaluating Financial Reporting Quality: Metrics, challenges, and impact on Decision-Making. International Journal of Research Publication and Reviews, 5(10), 1144–1156. https://doi.org/10.55248/gengpi.5.1024.2735 google scholar
  • Miroshnychenko, I., Barontini, R., & De Massis, A. (2019). Investment opportunities and R&D investments in family and nonfamily firms. R and D Management, 50(4), 447–461. https://doi.org/10.1111/radm.12392 google scholar
  • Norkio, A. (2023). Intangible capital and financial leverage in SMEs. Managerial Finance. https://doi.org/10.1108/mf-10-2022-0488 google scholar
  • Nugraha, A. K. N. A., Krista, C. E., & Huruta, A. D. (2024). The effect of country image, brand image, and warranty knowledge on car purchase intentions: a comparison of use situations. Cogent Business & Management, 11(1). https://doi.org/10.1080/23311975.2024.2332498 google scholar
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There are 54 citations in total.

Details

Primary Language English
Subjects Financial Accounting
Journal Section Research Article
Authors

Dunya Jalil Jaafar Almusawi 0009-0001-0603-6616

Submission Date July 29, 2025
Acceptance Date December 21, 2025
Publication Date January 27, 2026
DOI https://doi.org/10.26650/MED.1743396
IZ https://izlik.org/JA82MT82XW
Published in Issue Year 2026 Issue: 74

Cite

APA Jalil Jaafar Almusawi, D. (2026). Accounting Measurement of Innovation Cost and Its Impact on Firm Performance. Journal of Accounting Institute, 74, 21-33. https://doi.org/10.26650/MED.1743396
AMA 1.Jalil Jaafar Almusawi D. Accounting Measurement of Innovation Cost and Its Impact on Firm Performance. MED. 2026;(74):21-33. doi:10.26650/MED.1743396
Chicago Jalil Jaafar Almusawi, Dunya. 2026. “Accounting Measurement of Innovation Cost and Its Impact on Firm Performance”. Journal of Accounting Institute, nos. 74: 21-33. https://doi.org/10.26650/MED.1743396.
EndNote Jalil Jaafar Almusawi D (January 1, 2026) Accounting Measurement of Innovation Cost and Its Impact on Firm Performance. Journal of Accounting Institute 74 21–33.
IEEE [1]D. Jalil Jaafar Almusawi, “Accounting Measurement of Innovation Cost and Its Impact on Firm Performance”, MED, no. 74, pp. 21–33, Jan. 2026, doi: 10.26650/MED.1743396.
ISNAD Jalil Jaafar Almusawi, Dunya. “Accounting Measurement of Innovation Cost and Its Impact on Firm Performance”. Journal of Accounting Institute. 74 (January 1, 2026): 21-33. https://doi.org/10.26650/MED.1743396.
JAMA 1.Jalil Jaafar Almusawi D. Accounting Measurement of Innovation Cost and Its Impact on Firm Performance. MED. 2026;:21–33.
MLA Jalil Jaafar Almusawi, Dunya. “Accounting Measurement of Innovation Cost and Its Impact on Firm Performance”. Journal of Accounting Institute, no. 74, Jan. 2026, pp. 21-33, doi:10.26650/MED.1743396.
Vancouver 1.Dunya Jalil Jaafar Almusawi. Accounting Measurement of Innovation Cost and Its Impact on Firm Performance. MED. 2026 Jan. 1;(74):21-33. doi:10.26650/MED.1743396