R&D expenditures and earnings targets

Young, S E and Garcia, B (2009) R&D expenditures and earnings targets. European Accounting Review, 18 (1). pp. 7-32. ISSN 0963-8180

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Abstract

This paper examines whether firms cut R&D spending in response to short-term earnings pressures and how equity markets interpret such behaviour. Failure to report positive earnings and earnings growth increases the probability of a subsequent cut in R&D spending, while pressure to report positive earnings and earnings growth in the current period leads to contemporaneous cuts in R&D investment. On average, investors place less weight on earnings increases accompanied by unexpected cuts in R&D spending. However, the magnitude of the valuation discount varies according to the perceived reason for the cut and the importance of R&D investment as a driver of firm value.

Item Type:
Journal Article
Journal or Publication Title:
European Accounting Review
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/aacsb/disciplinebasedresearch
Subjects:
ID Code:
45473
Deposited By:
Deposited On:
11 Jul 2011 18:32
Refereed?:
Yes
Published?:
Published
Last Modified:
11 Aug 2020 00:21