We examine how capitalization vs expensing of R&D costs affects how the firm manages earnings with R&D, and the economic consequences of the earnings management method. We focus on the period around the UK’s switch from UK GAAP, which allowed expensing, to IFRS, which mandated capitalization...

This paper presents both a new approach to studying the consequences of accounting choice and a unique sample to examine the effects of accounting choice in the R&D context. We investigate the effect of firms' decision to capitalize R&D expenditures on the amount of information about future...