We examine the effect of capitalization vs expensing on UK firms' R&D expenditures. Our investigation is motivated by the UK's mandatory switch from UK GAAP to IFRS in 2005. Under UK GAAP, firms could elect to expense or capitalize development expenditures, but IFRS mandates capitalization....

We investigate whether firms “lean against the wind,” i.e., manage earnings upward to offset aggregate (market wide) undervaluation, by examining how firm-specific measures of earnings management correlate with aggregate market conditions. Leaning against the wind has been proposed by prior...

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...