Capitalization of R&amp;D costs and earnings management: Evidence from Italian listed companies

Markarian, Garen; Pozza, Lorenzo; Prencipe, Annalisa

doi:10.1016/j.intacc.2008.06.002

Cited by 107 publications

(99 citation statements)

References 46 publications

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“…Indeed, R&D activity differs by nature from other investments by a number of attributes: firm-specificity, information asymmetry, and high uncertainty (Holmstrom, 1989). Moreover, there is an ongoing debate on R&D accounting choice (Nelson et al, 2003;Chambers et al, 2003;Callimaci and Landry, 2003;Koch, 1981;Markarian et al, 2008;Seybert, 2010;Stadler and Banal-Estan, 2010). Accounting regulation gives firms the managerial choices made upon the R&D accounting treatmentcapitalization or expensing -, the amount of R&D investment, the R&D presentation and the content of R&D information disclosed in annual reports.R&D investments are likely to increase divergence between managers and investors and provide adequate grounds for earnings management.…”

Section: Introductionmentioning

confidence: 99%

“…This change in accounting reference also changes the incentives and the levels of managerial discretion for R&D accounting. Third, much of the prior studies focus on R&D capitalization and earnings management (Markarian et al, 2008;Thi et al, 2009;Persson and Fuentes, 2011). This study highlights the importance of discretionary R&D expending by examining whether R&D cutting is sensitive to achieving earnings targets.…”

Section: Introductionmentioning

confidence: 99%

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R D expenditures and earnings targets: evidence from France

Guidara¹

2015

Pressacademia

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Research and development (R&D) investments reduce current-period earnings while the benefits associated with the investments occur in the future. This problem implies an earnings management tool to boost short-term performance. While there is much evidence regarding managerial discretion through R&D capitalization, empirical studies that directly examine managerial discretion through R&D expenditure adjusting have not been widely provided in the European context. This paper seeks to determine if earnings targets influence R&D investment by encouraging R&D cuts after IFRS adoption. Focusing on a French setting, where companies invest heavily in R&D, results show that managers tend to cut the R&D expenditures in order to achieve earnings target. Studying two earnings management incentives: avoidance of losses (positive earnings target) and earnings decreases (positive earning growths target), findings support thresholds assumption and provide evidence on real earnings management through R&D expensing. This empirical research contributes to the literature by providing further evidence that post-FRS, R&D cut is a strategic decision influenced by earnings management to boost performance.

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

R D expenditures and earnings targets: evidence from France

Guidara¹

2015

Pressacademia

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“…Many concerns have been raised in this regard, also in relation to the possibility of managers implementing manipulative policies (Degeorge, Patel and Zeckhauser, 1999;Marquardt and Wiedman, 2004;Barua, Legoria, and Moffitt, 2006;Betty and Weber, 2006;Ramanna, 2008;Markarian, Pozza andPrencipe, 2008, Watts, 2003).…”

Section: Introductionmentioning

confidence: 99%

Assessing the Value Relevance of Goodwill Impairment Considering Country-Specific Factors: Evidence from EU Listed Companies

Laghi¹,

Mattei²,

Marcantonio³

2013

IJEF

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The objective of this paper is to assess the value relevance of goodwill impairment losses with reference to the listed companies operating in the European Union area during the period from 2008 to 2011. We investigate whether the information of goodwill impairment is a relevant factor that influences the investment decisions of market operators, testing the statistical significance and the explanatory power of a multivariate regression model widely known in literature for estimating market stock prices of companies using balance sheet data, including goodwill impairment. To this end, we select two samples of companies: a first group of listed companies operating in United Kingdom from 2008 to 2011 that is similar to the one used in previous researches on the same topic; a second group of firms operating in France, Germany, Italy, Portugal, Spain and United Kingdom that reported a goodwill impairment loss for the same period, to extend the analyses also to other economic contexts. Each sample is split into further subsamples differentiated in terms of country of domicile, reference year, industry sector and level of relative importance of goodwill impairments. We propose some changes to the original model, including a new explanatory variable aimed at considering also country-specific differences. The analyses of subsamples show that goodwill impairment is significant only for two years (2008 and 2009) and for French listed companies across all periods. Therefore, further investigation should help in understanding these differences that could be related to country-specific factors such as cultural, environmental and regulatory aspects.

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“…Overall, IAS 38 gives managers substantial discretion in estimating whether or not the conditions for capitalization of R&D costs are met (Markarian et al, 2008), and, therefore, provides room for earnings manipulation.…”

Section: Accounting For Randd Costs As a Tool For Earnings Managementmentioning

confidence: 99%

“…The studies were conducted mainly with European samples including France, Germany and Italy (e.g. Markarian et al, 2008;Dinh and Schulze, 2009;Zicke, 2014). The problem has rarely been studied in developing markets, and, as a result, no comparison can be made between the practices of developed and developing countries in this field.…”

confidence: 99%

Earnings management and R&D costs capitalization: evidence from Russian and German markets

Garanina

Nikulin

Frangulantc

2016

Investment Management and Financial Innovations

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Purpose: The goal of the paper is to analyze the motives that determine the propensity of companies in both developed and developing countries to engage in earnings management on the basis of accounting treatment of R&D costs.Methodology: The final sample analyzed in the paper is 47 Russian companies and 74 German companies for the period 2012-2013.Findings: The results of the research show that managers of companies in Russia and in Germany are engaged in earnings management practices using R&D costs, although the incentives for these actions are different. In the case of Russian companies, managers enjoy discretion in accounting choices when trying to meet debt covenants by adopting those methods that increase financial results. German managers are focused more on the other type of earnings management incentives -earnings smoothing. There is evidence that the amount of capitalized R&D costs in German companies increases when financial results vary more.Value: There is some evidence in favor of the presence of earnings management incentives in the decision to capitalize R&D costs in developed markets. However, this problem has rarely been studied in developing markets, and there is no comparison between the practices of developed and developing countries in the field. In this paper authors attempt to test the assumption that the contextual factors in developed and developing markets can differ, and thus they may provide different incentives for earnings management on the basis of R&D costs.

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Capitalization of R&D costs and earnings management: Evidence from Italian listed companies

Cited by 107 publications

References 46 publications

R D expenditures and earnings targets: evidence from France

R D expenditures and earnings targets: evidence from France

Assessing the Value Relevance of Goodwill Impairment Considering Country-Specific Factors: Evidence from EU Listed Companies

Earnings management and R&D costs capitalization: evidence from Russian and German markets

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Capitalization of R&D costs and earnings management: Evidence from Italian listed companies

Cited by 107 publications

References 46 publications

R D expenditures and earnings targets: evidence from France

R D expenditures and earnings targets: evidence from France

Assessing the Value Relevance of Goodwill Impairment Considering Country-Specific Factors: Evidence from EU Listed Companies

Earnings management and R&amp;D costs capitalization: evidence from Russian and German markets

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Earnings management and R&D costs capitalization: evidence from Russian and German markets