R&D Investments, Capital Expenditures, and Earnings Thresholds

Canace Thomas., Jackson, Scott. and Ma, Tao, R&D Investments, Capital Expenditures, and Earnings Thresholds. Review of Accounting Studies 23(1): 265 - 295, 2018

Posted: 2 Mar 2020

See all articles by Thomas Canace

Thomas Canace

Wake Forest University

Scott B. Jackson

University of South Carolina

Tao Ma

Rawls College of Business, Texas Tech University

Date Written: September 4, 2017

Abstract

Prior studies find that firms cut research and development (R&D) expense in response to earnings considerations. We extend this stream of research by documenting that firms narrowly achieving an earnings threshold also report unusually high capital expenditures. In addition, these firms’ total investments (R&D expense plus capital expenditures) do not vary in response to earnings thresholds, which suggests that, on average, reductions in R&D expense are offset by concurrent increases in capital expenditures. Lastly, our research design allows us to infer that the increased capital expenditures are largely R&D investments that are capitalized instead of non-R&D capital expenditures, suggesting that overall investments in R&D are relatively unchanged.

Suggested Citation

Canace, Thomas and Jackson, Scott B. and Ma, Tao, R&D Investments, Capital Expenditures, and Earnings Thresholds (September 4, 2017). Canace Thomas., Jackson, Scott. and Ma, Tao, R&D Investments, Capital Expenditures, and Earnings Thresholds. Review of Accounting Studies 23(1): 265 - 295, 2018, Available at SSRN: https://ssrn.com/abstract=3532047

Thomas Canace

Wake Forest University ( email )

2601 Wake Forest Road
Winston-Salem, NC 27109
United States
336-758-5904 (Phone)

Scott B. Jackson

University of South Carolina ( email )

School of Accounting
Moore School of Business
Columbia, SC 29208
United States
(803) 777-3100 (Phone)

Tao Ma (Contact Author)

Rawls College of Business, Texas Tech University ( email )

Box 42101
Lubbock, TX 79409-2101
United States

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