R&D expenditure and earnings targets

R&D expenditure and earnings targets
Document type
Working Paper
Osma, Beatriz Garcia; Young, Steven
Manchester Business School
Date of publication
1 January 2006
University of Manchester Business School Working Papers. No. 514
Trends: economic, social and technology trends affecting business
Business and management
Material type

This item is only available to registered users

Register now or Log in

Your use of this content is subject to the terms and conditions of this portal

This paper examines whether firms cut R&D spending in response to short-term earnings pressures and how the market evaluates such behaviour. Failure to beat an earnings benchmark increases the probability that R&D spending is pruned in the following period, while pressure to achieve current-period targets leads to contemporaneous cuts in R&D investment. The strength of the contemporaneous link between R&D manipulation and benchmark beating behaviour increased following the introduction of Financial Reporting Standard No.3: Reporting Financial Performance in 1993, suggesting substitution of classificatory earnings management with real operating manipulation. While on average investors discount earnings increases accompanied by unexpected cuts in R&D spending, their response depends on the perceived reason for the cut and the importance of R&D investment as a driver of firm value.

Related to Trends: economic, social and technology trends affecting business

Follow the money: exploring the link between UK growth and workers' pay packets

Downloadable briefing note looking at the relationship between productivity and pay growth

From precarity to empowerment: women and the future of work

Downloadable paper on ensuring a fair future of work for women

Economic insecurity: the case for a 21st century safety net

Downloadable paper on how economic insecurity is experienced by workers

Taxation and supplier networks: evidence from India

Downloadable paper considering the effect of tax policy on supplier networks in a large developing economy

More items related to this subject