Do Loss Firms Abuse R&D Investments?

• Main Authors: Shang-Yi Yu, 游上逸
• Other Authors: 王全三
• Format: Others
• Language: en_US
• Published: 2012
• Online Access: http://ndltd.ncl.edu.tw/handle/18269335270601083210

碩士 === 國立臺灣大學 === 會計學研究所 === 100 === Both the frequency of negative earnings and R&D investment have been increasing. However, the relation between these two variables has not been fully explored. This study uses the behavioral theory of firm to explain loss firms'' motivation to increase R&D and prospect theory to analyze loss firms'' risk attitudes in terms of their R&D decision and the future financial performance of the loss-induced R&D. Results show that negative earnings induce firms to invest more in R&D, consistent with the behavioral theory. Further, R&D investment increases as firms'' earnings become more negative, as proposed by the prospect theory. In other words, the prospect incentive is a critical factor of the “loss-induced” R&D. As regarding future operating performance, results indicate that prospect-based R&D is negatively associated with future earnings, and I further find that higher financial reporting quality curbs such unproductive activities by reducing loss firms'' overinvestment in R&D.