The Study Of R&D Capitalization Based On Earnings Management Motivation

Enterprises’ competition becomes technological innovation competition from competitive resource now. In order to survive in such a competitive environment, companies must enhance their core competitiveness and increase R&D investment. Because of the poor operability of the new accounting standards for R&D capital conditional processing mode,it provides the opportunity for enterprises using R&D accounting policy for earnings management. What is the influence of the choices of capitalized R&D expenditures in listed companies in China? The article initially reviews the domestic and foreign literature of the motives of accounting policy choice and R&D expenses capitalization motivation. Combined with China’s special economic environment, the paper does an empirical study of what motivations affect firms’ decisions to capitalize R&D expenditures, which based on the sample of listed companies fro m the year 2007 to the year 2012. According to the need of data, we choose the different level of profitability to classify the samples.Combined with China’s specific institutional context, we choose three factors: income smoothing motivation, contract motivation(debt covenants, compensation contract) and the capital market motivation(motivation losses, allotment motivation) to examine the effect on capitalized R&D expenditures. The result shows that china’s listed companies choose the accounting treatment of capitalized R&D expenditures will be affected by earnings management motivation. The factors that may affect the different profitability company is different, even with a same earnings management motivation influence on the different profitability companies are different. Specifically, in the loss- making enterprises, the debt contract is the main motivation for capitalized R&D expenditures. In the low-profit enterprises, debt covenants and motivation losses are the main motivation for capitalized R&D expenditures. In the good-profit enterprises, income smoothing, debt covenants, compensation contract and allotment motivation are the main motivation for capitalized R&D expenditures. In the highly profitable enterprise, income smoothing, debt covenants, compensation contract and allotment motivation are the main motivation for capitalized R&D expenditures. In the good-profit enterprises, R&D capitalized intensity has a positive relationship on allotment motivation.O n the contrary, in the highly profitable enterprises, R&D capitalized intensity has a negative relationship on allotment motivation.