Capitalization vs. expensing and the behavior of R&D expenditures

• Published in: Review of accounting studies Vol. 27; no. 4; pp. 1199 - 1232
• Main Authors: Oswald, Dennis, Simpson, Ana, Zarowin, Paul
• Format: Journal Article
• Language: English
• Published: New York Springer US 01.12.2022; Springer Nature B.V
• Subjects: Accounting policies; Accounting/Auditing; Business and Management; Capitalization; Corporate Finance; International Financial Reporting Standards; Public Finance; R&D; Research & development; R&D; Capitalization; Expensing; M41; IFRS; O32

We examine the effect of capitalization vs. expensing on UK firms’ R&D expenditures. Our investigation is motivated by the UK’s mandatory switch from UK GAAP to IFRS in 2005. Under UK GAAP, firms could elect to expense or capitalize development expenditures, but IFRS mandates capitalization. Thu...