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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
    1. Klette, Tor Jakob & Moen, Jarle & Griliches, Zvi, 2000. "Do subsidies to commercial R&D reduce market failures? Microeconometric evaluation studies1," Research Policy, Elsevier, vol. 29(4-5), pages 471-495, April.
    2. Martin, Stephen & Scott, John T., 2000. "The nature of innovation market failure and the design of public support for private innovation," Research Policy, Elsevier, vol. 29(4-5), pages 437-447, April.
    3. Karolina Ekholm & Johan Torstensson, 1997. "High-Technology Subsidies in General Equilibrium: A Sector-Specific Approach," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 1184-1203, November.
    4. 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.
    5. 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, vol. 57(3), pages 438-448, September.
    6. Schankerman, Mark, 1981. "The Effects of Double-Counting and Expensing on the Measured Returns to R&D," The Review of Economics and Statistics, MIT Press, vol. 63(3), pages 454-458, August.
    7. 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.
    8. 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.
    9. 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.
    10. Horwitz, Bn & Kolodny, R, 1980. "The Economic-Effects Of Involuntary Uniformity In The Financial-Reporting Of R And D Expenditures," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 18, pages 38-74.
    11. 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.
    12. Elliott, J & Richardson, G & Dyckman, T & Dukes, R, 1984. "The Impact Of Sfas No-2 On Firm Expenditures On Research And Development - Replications And Extensions," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 22(1), pages 85-102.
    13. Bruno Van Pottelsberghe & Dominique Guellec, 1999. "Does government support stimulates private R&D," ULB Institutional Repository 2013/6231, ULB -- Universite Libre de Bruxelles.
    14. Thomas Jeanjean & Anne Cazavan-Jeny, 2003. "Value relevance of R&D reporting: a signalling interpretation," Working Papers hal-00592028, HAL.
    15. Miyagiwa, Kaz & Ohno, Yuka, 2002. "Uncertainty, spillovers, and cooperative R&D," International Journal of Industrial Organization, Elsevier, vol. 20(6), pages 855-876, June.
    16. Klette, T.J. & Moen, J. & Griliches, Z., 1999. "Do Subsidies to Commercial R&D Reduce Market Failures? Microeconometric Evaluation Studies," Papers 16/99, Norwegian School of Economics and Business Administration-.
    17. Lakdawalla, Darius & Sood, Neeraj, 2004. "Social insurance and the design of innovation incentives," Economics Letters, Elsevier, vol. 85(1), pages 57-61, October.
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    More about this item

    Keywords

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    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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