This paper exploits the difference in U.S. GAAP requiring the capitalization of some costs of building certain intangibles (software development) but proscribing the capitalization of others (research and development costs). Our findings are consistent with the mitigation of under-investment in the software development setting through capitalization but we find no evidence of over-investment in the presence of high financial flexibility. Other hi-tech firms which cannot capitalize R&D costs suffer higher levels of under-investment relative to software development firms.