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The impact of accounting for research and development on innovation

Author(s)
Li, Lei (Lynn Lei)
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Sloan School of Management.
Advisor
John Core and Joseph Weber.
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M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission. http://dspace.mit.edu/handle/1721.1/7582
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Abstract
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
2012
URI
http://hdl.handle.net/1721.1/77822
Department
Sloan School of Management
Publisher
Massachusetts Institute of Technology
Keywords
Sloan School of Management.

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