This study explores the extent mandatory management forecast errors affect the reported R&D expenses of electronic firms listed on the Taiwan Stock Exchange. Our empirical results are consistent with the notion of strategic manipulation. First, firms with optimistic (pessimistic) management forecasts appear to have less (greater) R&D expenditures. Second, among all optimistic and pessimistic firms, the partition with forecast errors closest to the 20% hurdle has significantly less R&D expenditures than either the partition with forecast errors exceeding the hurdle or the partitions with forecast errors well below the hurdle. The findings lend support to the significance of financial regulators' hurdle rate decision.
