A research on motivations of R&D expenditures capitalization: Evidence from Chinese high-tech enterprises

Along with the continuous growth of R&D expenditures in many enterprises, the accounting treatment of R&D expenditures is becoming more and more important. China´s new accounting standards issued in 2006 apply conditional capitalization to the accounting treatment of R&D expenditures, which largely depends on accountants´ subjective judgment, and provides spacious space for earnings management. As earnings management produces lots of adverse economic consequences, the main motives need to be discussed. This paper takes listed companies of high-tech as samples to study their financial reports from 2008 to 2011, and finds that the main motives of R&D expenditures capitalization are smooth earnings, debt and compensation contracts, and political cost, but the capital market could not provide a sound explanation. Finally, based on empirical results, some corresponding countermeasures are put forward.