Earnings Management around Research and Development Manipulation

Abstract The aim of this paper is to investigate the impact of research and development investment (R&D) on managers ’ behaviour. Specifically, considering that R&D is a specific investment, inherently exposed to a high level of uncertainty and high information asymmetry and that R&D accounting choices are a controversial issue, the current study tries to evaluate R&D effect on earnings management. The study is conducted on a sample of French companies investing heavily in R&D and accounting data are collected from the Worldscope database. The earning management is estimated through the discretionary accruals. Results indicate that R&D favours both incentive and ability for managers’ earnings management. Key words R&D, earnings management, accrual