Income Smoothing and Discretionary R&D Expenditures of Japanese Firms*

Vivek Mande, Richard G. File and Wikil Kwak

Contemporary Accounting Research, 2000, vol. 17, issue 2, 263-302

Abstract: During the recent recession (1991 to present), Japanese firms decreased their spending on R&D for the first time since World War II. The decreases have raised concerns that Japanese managers may be making suboptimal allocations to R&D. We test whether Japanese managers adjust R&D based on short†term performance. Our results show that Japanese firms in several industries adjust their R&D budgets to smooth profits. Interestingly, adjustments to R&D are larger in expansion years. These results, similar to those documented with U.S. managers, point to myopic decision making by Japanese managers.

Date: 2000
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https://doi.org/10.1506/QXBV-UY71-A6W1-FWT4

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Persistent link: https://EconPapers.repec.org/RePEc:wly:coacre:v:17:y:2000:i:2:p:263-302

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