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Industrial Research and Development, Intangible Capital Stocks, and Firm Profit Rates

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  • Henry G. Grabowksi
  • Dennis C. Mueller

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.

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Bibliographic Info

Article provided by The RAND Corporation in its journal Bell Journal of Economics.

Volume (Year): 9 (1978)
Issue (Month): 2 (Autumn)
Pages: 328-343

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Handle: RePEc:rje:bellje:v:9:y:1978:i:autumn:p:328-343

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Cited by:
  1. Patricia M. Danzon & Eric L. Keuffel, 2013. "Regulation of the Pharmaceutical-Biotechnology Industry," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 407-484 National Bureau of Economic Research, Inc.
  2. John E. Kwoka, Jr., 1990. "The Effect of Market Growth and Contraction on Industry Price-Cost Margins," Eastern Economic Journal, Eastern Economic Association, vol. 16(3), pages 221-227, Jul-Sep.
  3. Mark Rogers, 2002. "Firm Performance and Investment in R&D and Intellectual Property," Melbourne Institute Working Paper Series wp2002n15, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  4. Elizabeth Webster, 2002. "Intangible and Intellectual Capital: A Review of the Literature," Melbourne Institute Working Paper Series wp2002n10, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  5. Casta, Jean-François & Ramond, Olivier & Escaffre, Lionel, 2007. "Intangible investments & accounting numbers : usefulness, informativeness, and relevance on the European stock markets," Economics Papers from University Paris Dauphine 123456789/2641, Paris Dauphine University.
  6. Casta, Jean-François & Ramond, Olivier & Escaffre, Lionel, 2005. "Investissement immatériel et utilité de l'information comptable: Etude empirique sur les marchés financiers européens," Economics Papers from University Paris Dauphine 123456789/2248, Paris Dauphine University.
  7. Jean-François Casta & Olivier Ramond & Lionel Escaffre, 2008. "Economic Properties of Recognized Intangibles under Domestic Accounting Standards: Evidence from European Capital Markets," Post-Print halshs-00681592, HAL.
  8. Charles R. Hulten & Xiaohui Hao, 2008. "What is a Company Really Worth? Intangible Capital and the "Market to Book Value" Puzzle," NBER Working Papers 14548, National Bureau of Economic Research, Inc.
  9. Gleason, Katherine I. & Klock, Mark, 2006. "Intangible capital in the pharmaceutical and chemical industry," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(2), pages 300-314, May.
  10. Zannetos, Zenon S. & Papageorgiou, Themis. & Tang, Ming-je., 1981. "Industry analysis in transportation," Working papers 1196-81., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  11. Kaiser, Ulrich, 2009. "Patents and profit rates," Economics Letters, Elsevier, vol. 104(2), pages 79-80, August.
  12. Matthias Greuner & David Kamerschen & Peter Klein, 2000. "The Competitive Effects of Advertising in the US Automobile Industry, 1970-94," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 7(3), pages 245-261.

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