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A Model of R&D Capitalization

Author

Listed:
  • Gamal Atallah

    (Department of Economics, University of Ottawa, Canada and CIRANO)

  • Massoud Khazabi

    (Department of Economics, University of Ottawa, Canada)

Abstract

This paper studies the decision of firms to expense or capitalize R&D expenditures. The firm has an incentive to mismatch the benefits and costs of R&D, expensing a larger portion of R&D when the benefits occur in the long-run and capitalizing a larger portion when the benefits occur in the short-run. There is strategic substitutability between R&D investments and expensing. Accounting standards, market evaluation of capitalization, and firms¡¦ accounting policies can have real effects on innovation.

Suggested Citation

  • Gamal Atallah & Massoud Khazabi, 2005. "A Model of R&D Capitalization," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 4(2), pages 107-121, August.
  • Handle: RePEc:ijb:journl:v:4:y:2005:i:2:p:107-121
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    References listed on IDEAS

    as
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    6. Poyago-Theotoky, Joanna, 1998. "R&D Competition in a Mixed Duopoly under Uncertainty and Easy Imitation," Journal of Comparative Economics, Elsevier, vol. 26(3), pages 415-428, September.
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    More about this item

    Keywords

    R&D; innovation; expensing; capitalization; accounting standards;
    All these keywords.

    JEL classification:

    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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