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- Title
Corporate investment and changes in GAAP.
- Authors
Shroff, Nemit
- Abstract
This paper investigates whether changes in Generally Accepted Accounting Principles (GAAP) affect corporate investment decisions. Using a sample containing forty nine changes in GAAP, I find that changes in accounting rules affect investment decisions. I then examine two mechanisms through which changes in GAAP affect investment. First, I find that changes in GAAP affect investment, particularly R&D expenditures, when firms have financial covenants that are affected by changes in GAAP. Second, I find evidence suggesting that the process of complying with some changes in GAAP alters managers' information sets and consequently changes their investment decisions, particularly their capital and R&D expenditures and, to a weaker extent, their acquistion expenditures. This paper contributes to the literature on the real effects of accounting by providing evidence that accounting rules affect investment decisions even when the rule change does not concern the measurement and reporting of investment, and by documenting specific mechanisms through which the relation manifests.
- Subjects
ACCOUNTING standards; CORPORATE investment in communities; RESEARCH &; development; CAPITAL investments; ECONOMIC aspects of decision making; ECONOMICS
- Publication
Review of Accounting Studies, 2017, Vol 22, Issue 1, p1
- ISSN
1380-6653
- Publication type
Article
- DOI
10.1007/s11142-016-9375-x