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R&D Expenditure and Earnings Targets

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  • Beatriz Garcia Osma
  • Steven Young

Abstract

This paper examines whether firms cut R&D spending in response to short-term earnings pressures and how equity markets interpret such behaviour. Failure to report positive earnings and earnings growth increases the probability of a subsequent cut in R&D spending, while pressure to report positive earnings and earnings growth in the current period leads to contemporaneous cuts in R&D investment. On average, investors place less weight on earnings increases accompanied by unexpected cuts in R&D spending. However, the magnitude of the valuation discount varies according to the perceived reason for the cut and the importance of R&D investment as a driver of firm value.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/09638180802016718
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal European Accounting Review.

Volume (Year): 18 (2009)
Issue (Month): 1 ()
Pages: 7-32

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Handle: RePEc:taf:euract:v:18:y:2009:i:1:p:7-32

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Cited by:
  1. 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 85-97, April.
  2. Guillaume Dumas, 2012. "Le Comportement Myopique D'Investissement En R&D : Une Realite En France ?," Post-Print hal-00690955, HAL.

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