The impact of accounting for research and development on innovation
Author(s)
Li, Lei (Lynn Lei)
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Other Contributors
Sloan School of Management.
Advisor
John Core and Joseph Weber.
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This paper examines whether a change in the accounting rule for research and development (R&D) cost is associated with changes in the innovation process. Specifically, I examine whether R&D expenditure, the number of patents per R&D dollar, and the number of citations per R&D dollar differ for firms that capitalize their R&D (capitalizers) relative to those that expense their R&D (expensers) after the issuance of Statement of Financial Accounting Standard (SFAS) 86, Accounting for the Cost of Computer Software to be Sold, Leased, or Otherwise Marketed. I find that relative to expensers, capitalizers increase their R&D expenditure post-SFAS 86. In addition, I find that the quality of innovation declines: post- SFAS 86, the total number of patent citations per R&D dollar decreases more for capitalizers than it does for expensers. This decline is consistent with managers of capitalizing firms taking advantage of SFAS 86 by over-investing in poor quality projects. Overall, the paper provides evidence that financial reporting can impact investments in innovation.
Description
Thesis (Ph. D.)--Massachusetts Institute of Technology, Sloan School of Management, 2012. Cataloged from PDF version of thesis. Includes bibliographical references (p. 48-51).
Date issued
2012Department
Sloan School of ManagementPublisher
Massachusetts Institute of Technology
Keywords
Sloan School of Management.