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Earnings Component Volatilities: Capital Versus R&D Expenditures

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  • Baruch Lev
  • Suresh Radhakrishnan
  • Jamie Yixing Tong

Abstract

This study examines the relationship between R&D expenditures and product‐market, process‐cost, and technological innovation/disruption‐related uncertainties. For this purpose, the product‐market, process‐cost, and technological innovation related uncertainties are linked to earnings component volatilities. Specifically, product‐market uncertainty is measured by future sales volatility; process‐cost uncertainty by future cost of sales volatility; and technological innovation uncertainty by future special items volatility. The results show that the associations between R&D expenditures and future sales and cost of sales volatilities are lower than those of capital expenditures. However, the association between R&D expenditures and future special items volatility is higher than that of capital expenditures. Collectively, these findings provide insights into the debate on capitalizing versus expensing R&D expenditures.

Suggested Citation

  • Baruch Lev & Suresh Radhakrishnan & Jamie Yixing Tong, 2021. "Earnings Component Volatilities: Capital Versus R&D Expenditures," Production and Operations Management, Production and Operations Management Society, vol. 30(5), pages 1475-1492, May.
    • Handle: RePEc:bla:popmgt:v:30:y:2021:i:5:p:1475-1492
    DOI: 10.1111/poms.13333
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    References listed on IDEAS

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    2. Taoufik Elkemali, 2024. "Intangible and Tangible Investments and Future Earnings Volatility," Economies, MDPI, vol. 12(6), pages 1-18, May.

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