ABSTRACT
We analyze the economic impact of the accounting treatment of exploration expenditures in three different accounting regimes: aggregate disclosure, disaggregated disclosure, and a voluntary choice. The disclosure of information regarding the outcome of exploration can be used by competitors in two ways: to assess the competitive gain of the firm or to imitate the firm's exploration. Different accounting treatments provide different information for these two purposes and, thereby, affect investment decisions differently. We find that, if an accounting regime change that increases information about exploration outcomes is enforced, the leader's investment decision in general becomes more extreme. On the one hand, leaders with high investment costs may decrease their investment because the spillover effect is too strong. On the other hand, interestingly, leaders with low investment costs may actually increase their investment to dilute the imitation-useful information and even intimidate competitors.
