Capitalization of R&D costs and earnings management: Evidence from Italian listed companies

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• 作者：Garen Markarian ; Lorenzo Pozza ; Annalisa Prencipe
• 关键词：Earnings management ; Cost capitalization ; R& ; D accounting ; Earnings smoothing ; Debt covenants ; Italian companies
• 刊名：The International Journal of Accounting
• 出版年：2008
• 出版时间：September 2008
• 年：2008
• 卷：43
• 期：3
• 页码：246-267
• 全文大小：239 K

文摘

The capitalization of research and development (R&D) costs is a controversial accounting issue because of the contention that such capitalization is motivated by incentives to manipulate earnings. Based on a sample of Italian listed companies, this study examines whether companies' decisions to capitalize R&D costs are affected by earnings-management motivations. Italy provides a natural context for testing our hypothesized relationships because Italian GAAP allows for the capitalization of R&D costs. Using a Tobit regression model to test our hypotheses, we show that companies tend to use cost capitalization for earnings-smoothing purposes. The hypothesis that firms capitalize R&D costs to reduce the risk of violating debt covenants is not supported.