Francesco Mazzi
Country-level corruption and accounting choice: Research & development capitalization under IFRS
Mazzi, Francesco; Slack, Richard; Tsalavoutas, Ioannis; Tsoligkas, Fanis
Authors
Abstract
International Accounting Standard 38 Intangible Assets mandates that development costs must be capitalized if certain conditions specified in the standard are met. However, this requires managerial judgement and hence may be subject to opportunism. Corruption is a permeable informal country characteristic that penetrates firms' behaviour, influencing corporate misconduct. We conjecture that an environment with high corruption facilitates management in their justification of meeting the capitalization criteria of assets that should have been expensed, either partly or entirely. Effectively, these capitalized assets will not generate the future economic benefits implicitly conveyed by their recognition. This recognition, however, sends positive (albeit distorted) market signals for future earnings and increases current year reported earnings. We find that there is a positive relation between country-level corruption and the amount of development costs capitalized in a given year. Moreover, the higher the levels of country corruption, the lower the contribution of capitalized development costs in a given year to future profitability. Finally, this association is moderated by companies’ levels of internationalization.
Citation
Mazzi, F., Slack, R., Tsalavoutas, I., & Tsoligkas, F. (2019). Country-level corruption and accounting choice: Research & development capitalization under IFRS. The British Accounting Review, 51(5), Article 100821. https://doi.org/10.1016/j.bar.2019.02.003
Journal Article Type | Article |
---|---|
Acceptance Date | Feb 10, 2019 |
Online Publication Date | Feb 18, 2019 |
Publication Date | Sep 30, 2019 |
Deposit Date | Feb 18, 2019 |
Publicly Available Date | Feb 18, 2021 |
Journal | British Accounting Review |
Print ISSN | 0890-8389 |
Electronic ISSN | 1095-8347 |
Publisher | Elsevier |
Peer Reviewed | Peer Reviewed |
Volume | 51 |
Issue | 5 |
Article Number | 100821 |
DOI | https://doi.org/10.1016/j.bar.2019.02.003 |
Public URL | https://durham-repository.worktribe.com/output/1307981 |
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Copyright Statement
© 2019 This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
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