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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

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. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.

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