Characteristics of firms which capitalise development expenditures

Abstract

This project investigates the characteristics of firms in New Zealand who choose to expense versus capitalise expenditures for internally generated development projects. Using a sample of 315 NZ firm-year observations, I find that the decision to expense versus capitalize is influenced by profitability, financial health and intensity of a firm’s research and development (R&D) programme. Firms which capitalise R&D are smaller, less profitable, more likely to be in financial distress, and have higher intensity R&D programs. These results suggest that New Zealand firms are similar to firms in other countries who seem to make choices among accounting alternatives in a way to manage reported earnings