Capitalization of R&D costs and earnings management: Evidence from Italian listed companies
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.
Year of publication: |
2008
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Authors: | Markarian, Garen ; Pozza, Lorenzo ; Prencipe, Annalisa |
Published in: |
The International Journal of Accounting. - Elsevier, ISSN 0020-7063. - Vol. 43.2008, 3, p. 246-267
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Publisher: |
Elsevier |
Saved in:
Online Resource
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