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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.

Suggested Citation

  • Beatriz Garcia Osma & Steven Young, 2009. "R&D Expenditure and Earnings Targets," European Accounting Review, Taylor & Francis Journals, vol. 18(1), pages 7-32.
  • Handle: RePEc:taf:euract:v:18:y:2009:i:1:p:7-32
    DOI: 10.1080/09638180802016718
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    Cited by:

    1. repec:hur:ijaraf:v:4:y:2014:i:2:p:85-97 is not listed on IDEAS
    2. Guillaume Dumas, 2012. "Le Comportement Myopique D'Investissement En R&D : Une Realite En France ?," Post-Print hal-00690955, HAL.
    3. repec:eee:spacre:v:15:y:2012:i:2:p:257-286 is not listed on IDEAS
    4. 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 81-93, April.

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