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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.

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File URL: http://mpra.ub.uni-muenchen.de/39459/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 39459.

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Date of creation: 18 Jan 2004
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Publication status: Published in International Journal of Business and Economics No. 2.Vol. 4(2005): pp. 107-121
Handle: RePEc:pra:mprapa:39459

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Keywords: Innovation; Expensing; Capitalization; Accounting standards;

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  1. Petrakis, Emmanuel & Poyago-Theotoky, Joanna, 2002. "R&D Subsidies versus R&D Cooperation in a Duopoly with Spillovers and Pollution," Australian Economic Papers, Wiley Blackwell, Wiley Blackwell, vol. 41(1), pages 37-52, March.
  2. 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.
  3. Minoru Kitahara & Toshihiro Matsumura, 2006. "Realized Cost-Based Subsidies For Strategic R&D Investments With "Ex Ante" And "Ex Post" Asymmetries," The Japanese Economic Review, Japanese Economic Association, Japanese Economic Association, vol. 57(3), pages 438-448.
  4. Yuan, DING & Gary, ENTWISTLE & Hervé, STOLOWY, 2003. "International differences in R&D disclosure practices : evidence in a French and Canadian context," Les Cahiers de Recherche 783, HEC Paris.
  5. Benoit Mulkay & Bronwyn H. Hall & Jacques Mairesse, 2000. "Firm Level Investment and R&D in France and the United States: A Comparison," NBER Working Papers 8038, National Bureau of Economic Research, Inc.
  6. Lakdawalla, Darius & Sood, Neeraj, 2004. "Social insurance and the design of innovation incentives," Economics Letters, Elsevier, Elsevier, vol. 85(1), pages 57-61, October.
  7. Miyagiwa, Kaz & Ohno, Yuka, 2002. "Uncertainty, spillovers, and cooperative R&D," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 20(6), pages 855-876, June.
  8. Ekholm, Karolina & Torstensson, Johan, 1996. "High-Technology Subsidies in General Equilibrium: A Sector-Specific Approach," Working Paper Series, Research Institute of Industrial Economics 467, Research Institute of Industrial Economics.
  9. Stephen Martin & John T. Scott, 1999. "The Nature of Innovation Market Failure and the Design of Public Support for Private Innovation," CIE Discussion Papers, University of Copenhagen. Department of Economics. Centre for Industrial Economics 1999-02, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  10. Bruno Van Pottelsberghe & Dominique Guellec, 1999. "Does government support stimulates private R&D," ULB Institutional Repository 2013/6231, ULB -- Universite Libre de Bruxelles.
  11. Klette, T.J. & Moen, J. & Griliches, Z., 1999. "Do Subsidies to Commercial R&D Reduce Market Failures? Microeconometric Evaluation Studies," Papers, Norwegian School of Economics and Business Administration- 16/99, Norwegian School of Economics and Business Administration-.
  12. Cazavan-Jeny , Anne & Jeanjean, Thomas, 2003. "Value Relevance of R&D Reporting : A Signaling Interpretation," ESSEC Working Papers, ESSEC Research Center, ESSEC Business School DR 03021, ESSEC Research Center, ESSEC Business School.
  13. Isabel Busom, 2000. "An Empirical Evaluation of The Effects of R&D Subsidies," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 9(2), pages 111-148.
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