TY - JOUR
T1 - R&D investments, capital expenditures, and earnings thresholds
AU - Canace, Thomas G.
AU - Jackson, Scott B.
AU - Ma, Tao
N1 - Funding Information:
Acknowledgements We thank Patricia Dechow (editor), two anonymous reviewers, Robert Lipe, Joel Owens, Leigh Salzsieder, Phil Shane, Kim Smith, Bryan Stewart, Brad Tuttle, and workshop participants at Hong Kong Baptist University and the College of William & Mary for helpful comments and suggestions. Professor Canace gratefully acknowledges the Wake Forest University School of Business Faculty Fund for providing research funding.
Publisher Copyright:
© 2017, Springer Science+Business Media, LLC.
PY - 2018/3/1
Y1 - 2018/3/1
N2 - 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.
AB - 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.
KW - Research and development
KW - capital expenditures
KW - earnings considerations
KW - earnings thresholds
KW - investments
UR - http://www.scopus.com/inward/record.url?scp=85029580664&partnerID=8YFLogxK
U2 - 10.1007/s11142-017-9428-9
DO - 10.1007/s11142-017-9428-9
M3 - Article
AN - SCOPUS:85029580664
VL - 23
SP - 265
EP - 295
JO - Review of Accounting Studies
JF - Review of Accounting Studies
SN - 1380-6653
IS - 1
ER -