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Using the R&D capitalisation choice to explain the scale benefits of R&D investment

Author

Listed:
  • Hai Wu

    (Research School of Accounting, Australian National University, Canberra, ACT, Australia)

  • Anne-Maree Thomas

    (Independent scholar)

  • Sue Wright

    (UTS Business School, University of Technology Sydney, Sydney, NSW, Australia)

Abstract

This paper helps explain a ‘puzzle’ about the scale benefits of R&D investment: although larger firms are less efficient innovators, they spend more on R&D investment and earn more from R&D investment. We find evidence suggesting that large firms enjoy a comparative advantage investing in R&D projects with less chance of success, although they do not experience such scale benefits from R&D investments with more chance of success. We capture managers’ evaluation of the chance of success of an R&D investment using an accounting choice to capitalise or expense the R&D investment. Our results have policy implications for the design of efficient and equitable allocations of R&D tax incentives between large and small firms, and for the usefulness to investors of allowing discretion in the accounting treatment of R&D expenditures. JEL Classification: M41, M48

Suggested Citation

  • Hai Wu & Anne-Maree Thomas & Sue Wright, 2020. "Using the R&D capitalisation choice to explain the scale benefits of R&D investment," Australian Journal of Management, Australian School of Business, vol. 45(4), pages 579-606, November.
    • Handle: RePEc:sae:ausman:v:45:y:2020:i:4:p:579-606
    DOI: 10.1177/0312896219897749
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    References listed on IDEAS

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    2. Shawn Ho & Baljit K. Sidhu & Fan Yang, 2023. "The response of Australian firms to AASB 138 disallowing the recognition of internally generated identifiable intangibles," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(3), pages 3609-3641, September.
    3. Prabashi Dharmasiri, 2023. "Social connections, CEO turnover and corporate policy change," Australian Journal of Management, Australian School of Business, vol. 48(3), pages 567-595, August.

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    More about this item

    Keywords

    Capitalization; R&D; scale effect;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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