The association of R&D and capital expenditures with subsequent earnings variability

Eli Amir*, Yanling Guan, Gilad Livne

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


We estimate the association of investments in R&D and in physical assets (CAPEX) with subsequent earnings variability. We estimate these relations in different time periods and across industries. We find that R&D contributes to subsequent earnings variability more than CAPEX only in relative R&D-intensive industries - industries in which R&D is relatively more intensive than physical capital. In physical assets-intensive industries, we do not find similar relations. The findings suggest that with respect to subsequent earnings variability, fundamental differences between investment information about R&D and CAPEX exist. However, they are mainly noticeable in firms that operate in relatively R&D-intensive industries. The evidence also suggests there was a shift in the relations between R&D and CAPEX over time. Our findings contribute to the debate on accounting for R&D expenditures.

Original languageEnglish
Pages (from-to)222-246
Number of pages25
JournalJournal of Business Finance and Accounting
Issue number1-2
StatePublished - Jan 2007
Externally publishedYes


  • Capital expenditures (CAPEX)
  • Earnings variability
  • Industry analysis
  • Research and development (R&D)
  • SFAS 2


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