Earnings Component Volatilities: Capital Versus R&D Expenditures

This study examines the relationship between R&D expenditures and product‐market, process‐cost, and technological innovation/disruption‐related uncertainties. For this purpose, the product‐market, process‐cost, and technological innovation related uncertainties are linked to earnings component volatilities. Specifically, product‐market uncertainty is measured by future sales volatility; process‐cost uncertainty by future cost of sales volatility; and technological innovation uncertainty by future special items volatility. The results show that the associations between R&D expenditures and future sales and cost of sales volatilities are lower than those of capital expenditures. However, the association between R&D expenditures and future special items volatility is higher than that of capital expenditures. Collectively, these findings provide insights into the debate on capitalizing versus expensing R&D expenditures.

• 저널Production and Operations Management · 30(5) · 1475–1492
• 토픽Capital Investment and Risk Analysis · Finance
• DOI10.1111/poms.13333
• 저자Baruch Lev, Suresh Radhakrishnan, Jamie Yixing Tong