The Effect of Accounting Flexibility on R&D Investment Choice

The paper investigates the relationship between R&D investment choice and accounting flexibility in China for the first time by using empirical method. The results indicate that managers are more likely to cut R&D investments when the accounting flexibility is low, which means Chinese managers use R&D investment as a tool for real earnings management. Our results are consistent with theoretical papers that posit substitution effects between accounting and real earnings management choices.