[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/taf/acceur/v19y2022i3p363-396.html
   My bibliography  Save this article

Capitalising or Expensing Development Costs? – Mixed Methods Evidence on the Determinants and Motives of the Accounting Policy in the context of UK Private Companies

Author

Listed:
  • Annika Brasch
  • Brigitte Eierle
  • Robin Jarvis
Abstract
Following calls for further research, this study evaluates the determinants and motives behind private companies’ decision to capitalise development costs by using mixed methods. While prior literature and expert interviews indicate initially that private firms may be motivated opportunistically, subsequent archival analyses show that development costs are capitalised to meet benchmarks and ameliorate poor profitability. Additionally, interview evidence emphasises that debt covenant violation avoidance and increasing merger and acquisition (M&A) values are important drivers for capitalisation, whereas management compensation schemes do not seem to influence their accounting policy. Moreover, findings imply a negative association between firm size and the capitalisation of development costs. Expert interview evidence indicates that smaller companies are more likely to have financing needs, suggesting that capitalisation is employed to signal future economic benefits to investors. Conversely, the motivation for larger companies which are more likely to expense may be grounded on risk avoidance from future impairments.

Suggested Citation

  • Annika Brasch & Brigitte Eierle & Robin Jarvis, 2022. "Capitalising or Expensing Development Costs? – Mixed Methods Evidence on the Determinants and Motives of the Accounting Policy in the context of UK Private Companies," Accounting in Europe, Taylor & Francis Journals, vol. 19(3), pages 363-396, September.
    • Handle: RePEc:taf:acceur:v:19:y:2022:i:3:p:363-396
    DOI: 10.1080/17449480.2022.2049327
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/17449480.2022.2049327
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/17449480.2022.2049327?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Brasch, Annika & Eierle, Brigitte & Jarvis, Robin, 2022. "Research and development investments, development costs capitalization, and credit ratings: Exploratory evidence from UK R&D-active private firms," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 48(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:acceur:v:19:y:2022:i:3:p:363-396. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAIE20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.