The Association Between The Uncertainty Of Future Economic Benefits And Current R & D And Capital Expenditures: Industry And Intertemporal Analyses
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Tarih
2005
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Yayıncı
İstanbul Ticaret Üniversitesi
Erişim Hakkı
info:eu-repo/semantics/openAccess
Özet
Since 1974, R&D expenditures have been fully expensed when incurred partly because R&D activities are claimed to be associated with a high degree of uncertainty in future economic benefits. In this study, we estimate the association between R&D expenditures and capital expenditures (CAPEX) and the variance of future earnings per share and operating income. We show that R&D expenditures lead to higher volatility of future earnings than capital expenditures only in R&D-intensive industries, where industry R&D intensity is measured as the R&D-to-CAPEX ratio. We also find that the stronger association of R&D with uncertainty in future earnings is a recent phenomenon. Finally, we show that in industries that are relatively less dependent on R&D activities, the probability of recovering R&D expenditures is similar to that of capital expenditures. Overall, our results suggest that while some industries engage in a more innovative and uncertain R&D activities, R&D in other industries is less uncertain. These results suggest that the impact of R&D on future performance considerably varies across industries and time periods. This also implies that a uniform expensing requirement may not accurately reflect underlying economic relations. February 2005 We thank Dan Weiss and seminar participants at Cardiff University, Lancaster University, London Business School, Singapore Management University, and Tel Aviv University for many useful comments. Address correspondence to Eli Amir, London Business School, +44-(0)2072625050 (ext. 3174), eamir@london.edu.
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The Effects Of Globalization On Financial Reporting
