Income Smoothing and Discretionary R&D Expenditures of Japanese Firms

Vivek Mande · Richard File · Wikil Kwak

73 citations0/0 files storedContemporary Accounting Research

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Abstract

Abstract During the recent recession (1991 to present), Japanese firms decreased their spending on R&D for the first time since World War II. The decreases have raised concerns that Japanese managers may be making suboptimal allocations to R&D. We test whether Japanese managers adjust R&D based on short‐term performance. Our results show that Japanese firms in several industries adjust their R&D budgets to smooth profits. Interestingly, adjustments to R&D are larger in expansion years. These results, similar to those documented with U.S. managers, point to myopic decision making by Japanese managers.

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References

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