Using the R&D capitalisation choice to explain the scale benefits of R&D investment

Hai Wu, Anne-Maree Thomas and Sue Wright
Additional contact information
Hai Wu: Research School of Accounting, Australian National University, Canberra, ACT, Australia
Anne-Maree Thomas: Independent scholar
Sue Wright: UTS Business School, University of Technology Sydney, Sydney, NSW, Australia

Australian Journal of Management, 2020, vol. 45, issue 4, 579-606

Abstract: This paper helps explain a ‘puzzle’ about the scale benefits of R&D investment: although larger firms are less efficient innovators, they spend more on R&D investment and earn more from R&D investment. We find evidence suggesting that large firms enjoy a comparative advantage investing in R&D projects with less chance of success, although they do not experience such scale benefits from R&D investments with more chance of success. We capture managers’ evaluation of the chance of success of an R&D investment using an accounting choice to capitalise or expense the R&D investment. Our results have policy implications for the design of efficient and equitable allocations of R&D tax incentives between large and small firms, and for the usefulness to investors of allowing discretion in the accounting treatment of R&D expenditures. JEL Classification: M41, M48

Keywords: Capitalization; R&D; scale effect (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:45:y:2020:i:4:p:579-606

DOI: 10.1177/0312896219897749

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