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The Impact of SFAS No. 2 on Firm Expenditures on Research and Development: Replications and Extensions

1984; Wiley; Volume: 22; Issue: 1 Linguagem: Inglês

10.2307/2490702

1475-679X

John A. Elliott, Gordon D. Richardson, Thomas R. Dyckman, Roland E. Dukes,

Accounting Theory and Financial Reporting

An important focus of recent empirical research is the impact of mandatory financial reporting standards on managements' decisions. The existence of an effect is typically established indirectly by (1) testing for either a change in (usually) one or more of the parameters of the distribution of affected firms' security returns, (2) questioning managers about specific actions taken in response to a mandated accounting change, or (3) in rare cases, by directly examining whether changes took place in the impacted variable(s). The present research applies the third approach to the FASB's mandated requirements for accounting for research and development. In 1974, the FASB issued Statement of Financial Accounting Standard No. 2: Accounting for Research and Development Costs (hereafter SFAS 2) which requires companies to expense research and development (R&D) outlays in the year incurred. The management of many of the firms which were then capitalizing R&D, asserted that this change in accounting method would necessitate reductions in their outlays on R&D.