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A model of R&D capitalization

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  • Atallah, Gamal
  • Khazabi, Massouid

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

  • Atallah, Gamal & Khazabi, Massouid, 2004. "A model of R&D capitalization," MPRA Paper 39459, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:39459
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    References listed on IDEAS

    as
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    2. Peter B. Linhart & Joel L. Lebowitz & Frank W. Sinden, 1974. "The Choice between Capitalizing and Expensing under Rate Regulation," Bell Journal of Economics, The RAND Corporation, vol. 5(2), pages 406-419, Autumn.
    3. Cazavan-Jeny , Anne & Jeanjean, Thomas, 2003. "Value Relevance of R&D Reporting : A Signaling Interpretation," ESSEC Working Papers DR 03021, ESSEC Research Center, ESSEC Business School.
    4. Lakdawalla, Darius & Sood, Neeraj, 2004. "Social insurance and the design of innovation incentives," Economics Letters, Elsevier, vol. 85(1), pages 57-61, October.
    5. Yuan, DING & Gary, ENTWISTLE & Hervé, STOLOWY, 2003. "International differences in R&D disclosure practices : evidence in a French and Canadian context," HEC Research Papers Series 783, HEC Paris.
    6. Miyagiwa, Kaz & Ohno, Yuka, 2002. "Uncertainty, spillovers, and cooperative R&D," International Journal of Industrial Organization, Elsevier, vol. 20(6), pages 855-876, June.
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    More about this item

    Keywords

    Innovation; Expensing; Capitalization; Accounting standards;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • 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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