R&D investments, capital expenditures, and earnings thresholds

Thomas G. Canace, Scott B. Jackson, Tao Ma

Research output: Contribution to journalArticle

7 Scopus citations

Abstract

Prior studies find that firms cut research and development (R&D) expense in response to earnings considerations. We extend this stream of research by documenting that firms narrowly achieving an earnings threshold also report unusually high capital expenditures. In addition, these firms’ total investments (R&D expense plus capital expenditures) do not vary in response to earnings thresholds, which suggests that, on average, reductions in R&D expense are offset by concurrent increases in capital expenditures. Lastly, our research design allows us to infer that the increased capital expenditures are largely R&D investments that are capitalized instead of non-R&D capital expenditures, suggesting that overall investments in R&D are relatively unchanged.

Original languageEnglish
Pages (from-to)265-295
Number of pages31
JournalReview of Accounting Studies
Volume23
Issue number1
DOIs
StatePublished - Mar 1 2018

Keywords

  • Research and development
  • capital expenditures
  • earnings considerations
  • earnings thresholds
  • investments

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