Capitalization versus expensing: Evidence on the uncertainty of future earnings from capital expenditures versus R&D outlays

S. P. Kothari*, Ted E. Laguerre, Andrew J. Leone

*Corresponding author for this work

Research output: Contribution to journalArticle

329 Scopus citations

Abstract

We propose and implement a new method to estimate the relation between R&D investments and the uncertainty of future benefits from those investments. The empirical analysis compares the relative contributions of current investments in R&D and PP&E to future earnings variability using a sample of roughly 50,000 firm-year observations from 1972-1997. Evidence is strongly consistent with the hypothesis that R&D investments generate future benefits that are far more uncertain than benefits from investments in PP&E. Our results should help the current discussion on accounting for R&D and the methodology might be helpful in standard setting in other contexts as well.

Original languageEnglish (US)
Pages (from-to)355-382
Number of pages28
JournalReview of Accounting Studies
Volume7
Issue number4
DOIs
StatePublished - Jan 1 2002

Keywords

  • Capitalization
  • Earnings reliability
  • R&D

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting(all)

Fingerprint Dive into the research topics of 'Capitalization versus expensing: Evidence on the uncertainty of future earnings from capital expenditures versus R&D outlays'. Together they form a unique fingerprint.

  • Cite this