The Economic Consequences on Investment Decisions in Development Activities Due to the Imposition to Expense Development Costs for SMEs: An Experimental Study Authors: Daniele Gatti

Sammanfattning: Purpose: The purpose of this study is to investigate the impact of the prohibition to capitalise any development cost in SMEs, as required by IFRS for SMEs (section 18.14), on SMEs’ managers’ decisions on investments in development activities. Methodology: The methodology applied in this study is represented by an experimental approach structured in simulations built with Microsoft Excel. The empirical results are then interpreted with the support of two-way mixed ANOVA in SPSS. Theoretical perspective: This study is based on economic consequences theory, as well as previous studies that investigate the effects of certain accounting regulation. Empirical foundation: The empirical findings were collected through simulations sent out to 79 Master’s students in Accounting and Finance enrolled at LUSEM in 2016/2017, out of which 25 answered the simulation. These 25 responses represent the empirical foundation of this research. Conclusions: Based on statistically significant findings, this study concludes that an accounting regulation which mandates the expensing of development costs decreases the tendency of managers to spend money on development projects and causes them to prefer investments in PPE rather than in development activities.