The Chinese Accounting Standards (CAS) began to converge to the International Financial Reporting Standards (IFRS) in 2007; the Chinese R&D accounting rules are similar to the IFRS rules but have some unique features. In this study, we identify opportunistic capitalization of development costs by using the details about capitalized and expensed costs of individual R&D projects that Chinese listed firms are required to disclose in annual financial reports. Firms that engaged in opportunistic capitalization have significantly lower profitability than firms that reported normal capitalization. After excluding such opportunistic capitalization, we find that, compared with firms that expensed all R&D costs, the normal capitalization firms have a greater number of patent applications and patent grants, higher operating and SG&A costs, higher operating revenue, but lower accounting profitability. The cumulative abnormal stock return around the annual report release date is, on average, significantly higher for the capitalization firms than the expense-all firms, which suggests that outside equity investors view capitalization of development costs as a positive signal of firm value. However, the abnormal return is not significantly different between normal and opportunistic capitalization firms, meaning that outside equity investors cannot distinguish opportunistic capitalization from normal capitalization ex ante and thus fail to deter firms from engaging in opportunistic capitalization. This study provides new evidence on the accounting practice of Chinese listed firms and the relation between R&D accounting choice and firm performance.