Munich Personal RePEc Archive

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.

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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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