The Association of R&D and Capital Expenditures with Subsequent Earnings Variability

25 Pages Posted: 1 Mar 2007

See all articles by Eli Amir

Eli Amir

Tel Aviv University

Yanling Guan

Hong Kong Baptist University (HKBU) - Department of Accountancy & Law

Gilad Livne

University of Exeter Business School

Abstract

We estimate the association of investments in R&D and in physical assets (CAPEX) with subsequent earnings variability. We estimate these relations in different time periods and across industries. We find that R&D contributes to subsequent earnings variability more than CAPEX only in relative R&D-intensive industries - industries in which R&D is relatively more intensive than physical capital. In physical assets-intensive industries, we do not find similar relations. The findings suggest that with respect to subsequent earnings variability, fundamental differences between investment information about R&D and CAPEX exist. However, they are mainly noticeable in firms that operate in relatively R&D-intensive industries. The evidence also suggests there was a shift in the relations between R&D and CAPEX over time. Our findings contribute to the debate on accounting for R&D expenditures.

Suggested Citation

Amir, Eli and Guan, Yanling and Livne, Gilad, The Association of R&D and Capital Expenditures with Subsequent Earnings Variability. Journal of Business Finance & Accounting, Vol. 34, Nos. 1-2, pp. 222-246, January/March 2007, Available at SSRN: https://ssrn.com/abstract=966484 or http://dx.doi.org/10.1111/j.1468-5957.2006.00651.x

Eli Amir (Contact Author)

Tel Aviv University ( email )

312 Recanati Bldg.
69978 Tel Aviv
Israel
+972 3 640-8510 (Phone)
+972 3 640-7738 (Fax)

Yanling Guan

Hong Kong Baptist University (HKBU) - Department of Accountancy & Law ( email )

Kowloon Tong, Kowloon
Hong Kong

Gilad Livne

University of Exeter Business School ( email )

Streatham Court
Rennes Drive
Exeter, EX4 4JH
United Kingdom
+44(0)1392 724436 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
36
Abstract Views
1,465
PlumX Metrics