Over-reporting of R&D by classification shifting within core earnings
Item
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Title
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Over-reporting of R&D by classification shifting within core earnings
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Identifier
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d_2009_2013:e14e9614fc4b:11939
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identifier
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12603
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Creator
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Shen, Yannan,
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Contributor
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Masako Darrough
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Date
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2013
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Language
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English
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Publisher
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City University of New York.
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Subject
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Accounting | Management | Classification Shifting | Earnings Management | Research and Development
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Abstract
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This study investigates classification shifting from other operating expenses to R&D (CSRD) as an earnings management tool. Investors assign higher valuation to R&D than to other expenses (Bublitz and Ettredge 1989), creating incentives for managers to classify other expenses as R&D. Using data on R&D intensive U.S. firms, I find evidence that is consistent with managers opportunistically engage in CSRD. This type of classification shifting becomes more pervasive as managers approach retirement, as earnings fall short of analyst forecasts, as previous upward accruals accumulate, and in the fourth quarter. I use current and prior period variables to identify suspect firms that appear to engage in CSRD. These firms experience lower future ROA and lower future stock returns than control firms. My study calls for caution in drawing inferences solely from reported R&D expenses.
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Type
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dissertation
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Source
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2009_2013.csv
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degree
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Ph.D.
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Program
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Business
