Industrial Research and Development, Intangible Capital Stocks, and Firm Profit Rates
Volume: Volume 9, No. 2
Issue: Autumn 1978
Pages: pp. 328-343
Authors: Henry G. Grabowksi and Dennis C. Mueller
Title: Industrial Research and Development, Intangible Capital Stocks, and Firm Profit Rates
Abstract: This paper performs a cross sectional analysis of firm profitability to determine whether firm investments in research and development (R&D) are a source of above-average returns. Accounting profit rates are adjusted to take account of firm capital outlays on R&D and advertising (i.e., investments in intangible capital). Then, with the use of a structure-performance regression model, these adjusted profit rates are regressed on various determinant variables including a measure of the firm's stock of R&D capital. This analysis indicates that firms in research-intensive industries earn significantly above-average returns on their R&D capital. These results are robust to alternative assumptions concerning depreciation rates and other model specification changes.
JEL Classification
Research and Development (6212)
Market Structure: Industrial Organization and Corporate Strategy (6110)