Tax Incentives as Determinants of Accounting for and Spending on R&D: An International Analysis
41 Pages Posted: 2 Oct 2014
Date Written: October 2, 2014
This article is an investigation of the conundrum of firms whose tax-minimising incentives should result in lower reported income by expensing R&D, while their financial reporting ones should result in higher reported income by capitalising R&D. Tax incentives for R&D help align those goals when accounting regulation permits the capitalisation of R&D. We use firms listed in the UK, France, Germany, Italy, Spain, and the Netherlands reporting under IFRS, and find that R&D-related tax benefits at the country level induce firms to at least partly capitalize, rather than expense R&D. Our results also indicate that country-specific R&D tax benefits provide significant incentives for increasing R&D expenditures, especially among high R&D spenders. Our findings are indicative of the influence of R&D tax incentives on accounting policies, well and above the amount of investments they are meant to induce.
Keywords: R&D expenditure, R&D capitalisation, tax incentives, accounting choice
JEL Classification: M41, M48
Suggested Citation: Suggested Citation