Experienced Executives’ Views of the Effects of R&D Capitalization on Reputation-Driven Real Earnings Management: A Replication of Survey Data from Seybert (2010)
University of Maryland - Department of Accounting & Information Assurance
February 25, 2016
Robert H. Smith School Research Paper No. RHS 2616810
This paper replicates the results of the survey of experienced executives reported in Section IV of Seybert (2010). Seybert retracted the survey data from the originally published article due to concerns about the source of the data. I survey 79 experienced executives to elicit their beliefs about reputation-driven real earnings management. Participants indicate that a manager would be more likely to continue a failing project, and that project abandonment would have a greater negative impact on the manager’s reputation concerns and future prospects at the firm, when R&D is capitalized. Consistent with capital market pressures identified in prior research, executives believe that abandoning a failing project would have a greater negative impact on stock price when R&D is capitalized, and they personally recommend continuing such a project in order to avoid missing the consensus analysts’ forecast. These findings complement the experimental results in Seybert (2010), and while they replicate the survey results contained therein, they are not an endorsement of the veracity of the original survey data.
Keywords: real earnings management, R&D, capitalization, expensing, overinvestment, self-monitoring, survey, replication
JEL Classification: M1, M10, M4, M41
Date posted: June 12, 2015 ; Last revised: March 25, 2016