An Association of R&D Costs versus Capital Expenditure with Future Earnings Variability

Abstract

The purpose of this paper is to examine the relationship between research and development expenditure and uncertainties of future earnings in India where firms are allowed to expense their research expenditure and capitalize development expenditure if certain conditions are fulfilled. We have obtained sample of 100 companies from S&P CNX 500 through CMEI prowess database. The study tested the predicting factors employing regression model. We found that R&D expenditure is statistically significant indicating that future earnings variability from R&D investment is higher than the future earnings variability due to capital expenditure.