Innovators and Imitators in Product-Market Competition and Accounting Reporting

58 Pages Posted: 16 Apr 2013

See all articles by Carlos Corona

Carlos Corona

Carnegie Mellon University - David A. Tepper School of Business

Lin Nan

Purdue University

Ran Zhao

Chapman University

Date Written: April 15, 2013

Abstract

In this study, we examine firms' investments in explorative initiatives and their choices of capitalization method in a product-market competition setting. Since the capitalization of exploration expenditures may contain information on whether a firm's exploration investment is successful, financial reports may reveal important information to competitors, and thus may have real consequences in product-market competition. In our paper, we identify two driving forces that induce firms to choose different capitalization methods: an information-spillover effect and a preempting effect. We also find that enforcing an accounting method that requires firms to capitalize expenditures of only successful explorations may increase or decrease innovation investments. Our study sheds light on the impact that the recognition of exploratory success has on firms' exploration investments.

Keywords: accounting capitalization disclosure, innovator, imitator, product competition

JEL Classification: M41, D43, C72

Suggested Citation

Corona, Carlos and Nan, Lin and Zhao, Ran, Innovators and Imitators in Product-Market Competition and Accounting Reporting (April 15, 2013). Available at SSRN: https://ssrn.com/abstract=2251506 or http://dx.doi.org/10.2139/ssrn.2251506

Carlos Corona

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Lin Nan (Contact Author)

Purdue University ( email )

100 S Grant St
West Lafayette, IN 47907
United States
7654960551 (Phone)

Ran Zhao

Chapman University ( email )

Orange, CA 92866
United States

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