R&D investments, capital expenditures, and earnings thresholds

Thomas G. Canace (), Scott B. Jackson () and Tao Ma ()
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Thomas G. Canace: Wake Forest University
Scott B. Jackson: University of South Carolina
Tao Ma: Texas Tech University

Review of Accounting Studies, 2018, vol. 23, issue 1, No 8, 265-295

Abstract: Abstract Prior studies find that firms cut research and development (R&D) expense in response to earnings considerations. We extend this stream of research by documenting that firms narrowly achieving an earnings threshold also report unusually high capital expenditures. In addition, these firms’ total investments (R&D expense plus capital expenditures) do not vary in response to earnings thresholds, which suggests that, on average, reductions in R&D expense are offset by concurrent increases in capital expenditures. Lastly, our research design allows us to infer that the increased capital expenditures are largely R&D investments that are capitalized instead of non-R&D capital expenditures, suggesting that overall investments in R&D are relatively unchanged.

Keywords: Research and development; capital expenditures; investments; earnings thresholds; earnings considerations; M41; M48; G31 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (6)

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DOI: 10.1007/s11142-017-9428-9

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