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

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Author Info
Henry G. Grabowksi
Dennis C. Mueller

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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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File URL: http://links.jstor.org/sici?sici=0361-915X%28197823%299%3A2%3C328%3AIRADIC%3E2.0.CO%3B2-K&origin=repec
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Publisher 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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  1. 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. [Downloadable!]
  2. Chris Doucouliagos & Patrice Laroche, 2007. "Unions and Profitability: A Meta-Analysis," Economics Series 2007_01, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance. [Downloadable!]
  3. Matthias R. Greuner, David R. Kamerschen, Peter G. Klein, 2000. "The Competitive Effects of Advertising in the US Automobile Industry, 1970–94," International Journal of the Economics of Business, Taylor and Francis Journals, vol. 7(3), pages 245-261, November. [Downloadable!] (restricted)
  4. Yuan, DING & Hervé, STOLOWY & Michel, TENENHAUS, 2003. "R&D Productivty: an International Study," Les Cahiers de Recherche 781, HEC Paris. [Downloadable!]
  5. Jedlicka, Lorenz & Jumah, Adusei, 2006. "The Austrian Insurance Industry: A Structure, Conduct and Performance Analysis," Economics Series 189, Institute for Advanced Studies. [Downloadable!]
  6. Petr Hanel & Alain St-Pierre, 2002. "Effects of R & D Spillovers on the Profitability of Firms," Review of Industrial Organization, Springer, vol. 20(4), pages 305-322, June. [Downloadable!] (restricted)
  7. 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. [Downloadable!] (restricted)
  8. 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. [Downloadable!]
  9. 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. [Downloadable!]
  10. 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. [Downloadable!]
  11. Don Fullerton & Andrew B. Lyon, 1989. "Tax Neutrality and Intangible Capital," NBER Working Papers 2430, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  12. Eklund, Johan & Wiberg, Daniel, 2007. "Persistence of profits and the systematic search for knowledge - R&D links to firm above-norm profits," Working Paper Series in Economics and Institutions of Innovation 85, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies. [Downloadable!]
  13. Charles D. DeLorme, Jr. & Peter G. Klein & David R. Kamerschen & Lisa Ford Voeks, 2003. "Structure, conduct and performance: a simultaneous equations approach," Applied Economics, Taylor and Francis Journals, vol. 35(1), pages 13-20, January. [Downloadable!] (restricted)
  14. Christopher Taylor, 1999. "The Cash Recovery Method of Calculating Profitability: An Application to Pharmaceutical Firms," Review of Industrial Organization, Springer, vol. 14(2), pages 135-146, March. [Downloadable!] (restricted)
  15. Natália Barbosa & Helen Louri, 2003. "Corporate performance: does ownership matter? A comparison of foreign - and domestic - owned firms in Greece and Portugal," Working Papers 26, Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho. [Downloadable!]
    Other versions:
  16. Athanasia Mavrommati & Athanasios Papadopoulos, 2005. "Measuring advertising intensity and intangible capital in the Greek food industry," Applied Economics, Taylor and Francis Journals, vol. 37(15), pages 1777-1787, August. [Downloadable!] (restricted)
  17. Paul H. Jensen & Elizabeth Webster, 2004. "Examining Biases in Measures of Firm Innovation," Melbourne Institute Working Paper Series wp2004n10, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne. [Downloadable!]
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