A model of R&D capitalization

Atallah, Gamal and Khazabi, Massouid (2004): A model of R&D capitalization. Published in: International Journal of Business and Economics , Vol. Vol. 4, No. No. 2 (April 2005): pp. 107-121.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Innovation; Expensing; Capitalization; Accounting standards
• Subjects: M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing > M41 - Accounting; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L21 - Business Objectives of the Firm; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O32 - Management of Technological Innovation and R&D

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