Research

Job Market Paper

The Precision Trap: How R&D Reclassification Distorts Investment Efficiency

• Committee: Valeri Nikolaev (Chair), Haresh Sapra, Douglas Skinner, Anthony Welsch, Anastasia Zakolyukina

• Presented at Chicago Booth Accounting Workshop & WashU Olin Accounting Research Conference

Abstract: This paper examines whether and how the precision of item classification in the income statement affects investment efficiency. I use the recent Section 174 change in R&D tax deductibility as an instrument for shifts in R&D classification, and build a model illustrating the trade-offs firms face. The model predicts that while firms misclassify R&D to preserve valuable investment, this misclassification introduces noise into classification precision, eventually leading to underinvestment. Using R&D-related employment as a proxy for real investments and a difference-in-differences (DiD) approach, I show that firms strategically manipulate R&D classifications as expected, and find some evidence of a deterioration in investment efficiency. In line with theoretical predictions, cross-sectional tests confirm that the effect is more pronounced among firms with higher initial classification precision. Collectively, these results demonstrate the important role of classification precision in investment efficiency and highlight how tax policy changes can spill over into corporate reporting, leading to real economic consequences.

Working Papers / Works in Progress

Attribution in Conference Calls: Impression Management or Incremental Information?

• Solo-authored, working paper

• Presented at Melbourne Accounting Research Seminar

Information in Corporate Bankruptcies

• Solo-authored, work in progress

• Presented at Chicago Booth Accounting Workshop

What does the Silence Say?

• Co-authored with Anastasia Zakolyukina & Jingyu Zhang, work in progress

Management Attribution & Compensation

• Solo-authored, work in progress