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Income Smoothing and Discretionary R&D Expenditures of Japanese Firms

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  • VIVEK MANDE
  • RICHARD G. FILE
  • WIKIL KWAK

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.

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  • Vivek Mande & Richard G. File & Wikil Kwak, 2000. "Income Smoothing and Discretionary R&D Expenditures of Japanese Firms," Contemporary Accounting Research, John Wiley & Sons, vol. 17(2), pages 263-302, June.
    • Handle: RePEc:wly:coacre:v:17:y:2000:i:2:p:263-302
    DOI: 10.1506/QXBV-UY71-A6W1-FWT4
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    8. Thomas H. Beechy, 2009. "The Many Challenges of Pension Accounting," Accounting Perspectives, John Wiley & Sons, vol. 8(2), pages 91-111, May.
    9. Ali Ostadhashemi & Muhammad Esmaeil Fadaei Nejad, 2019. "To study moderating role of ownership structure on R&D expenditure policies on accounting performance and market value," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 6(01), pages 1-18, March.
    10. Dirk E. Black & Spencer R. Pierce & Wayne B. Thomas, 2022. "A Test of Income Smoothing Using Pseudo Fiscal Years," Management Science, INFORMS, vol. 68(7), pages 5533-5555, July.
    11. Yasar Bayraktar & Asiye Tutuncu, 2020. "The Effect of R&D Expenditures on Earnings Management: A Research on Bist-All Shares," Istanbul Business Research, Istanbul University Business School, vol. 49(2), pages 301-315, November.
    12. Rihab Guidara & Younes Boujelbene, 2014. "R&D-Based Earnings Management and Accounting Performance Motivation," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 4(2), pages 81-93, April.
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