Expensing Versus Capitalization

• 成果类型: Article
• 署名作者: Lu, Tong; Sivaramakrishnan, Konduru
• 署名单位: University of Houston System; University of Houston; Rice University
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12333
• 发表日期: 2018
• 页码: 1262-1278
• 关键词: research-and-development; Intangibles; INVESTMENT; rejoinder

摘要

We develop a theoretical framework to study the effects of expensing versus capitalization of investment expenditures on capital market asset prices, corporate investment, and investment efficiency. We use a two-period model in which the financial reports at the end of the first period influence the price of the firm. In the first period, the current owner makes an investment decision that yields returns during the first and the second periods. We highlight the benefits and costs of the matching principle in GAAP and identify conditions under which less disclosure improves investment efficiency. We find that, in terms of investment efficiency, expensing beats capitalization if and only if the expected growth rate is high, the growth volatility is large, or the earnings persistence is small. We also offer testable empirical implications for accounting choice and for real earnings management.