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Profit Rates and Intangible Capital

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  • Megna, Pamela
  • Mueller, Dennis C

Abstract

A central question in industrial organization is why profit rates differ so dramatically across firms and industries. One of the many explanations offered for this phenomenon is the failure of conventional accounting methods to adjust for intangible capital stocks, i.e., it is argued that profit rates do not differ dramatically when capital stocks are correctly calculated to include intangible R&D and advertising capital. To test this hypothesis individual advertising capital stocks are calculated for firms in the toys, distilled beverages, cosmetics, and pharmaceuticals industries, and R&D stocks are calculated for the pharmaceuticals firms. The adjustments do not eliminate the wide dispersion in profit rates. Copyright 1991 by MIT Press.

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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics & Statistics.

Volume (Year): 73 (1991)
Issue (Month): 4 (November)
Pages: 632-42

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Handle: RePEc:tpr:restat:v:73:y:1991:i:4:p:632-42

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Web page: http://mitpress.mit.edu/journals/

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Cited by:
  1. Gleason, Katherine I. & Klock, Mark, 2006. "Intangible capital in the pharmaceutical and chemical industry," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 46(2), pages 300-314, May.
  2. Jaideep Anand, 2004. "Redeployment of corporate resources: A study of acquisition strategies in the US defense industries, 1978-1996," Managerial and Decision Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 25(6-7), pages 383-400.
  3. Paul Amadieu & Jean-Laurent Viviani, 2010. "Intangible effort and performance: the case of the French wine industry," Agribusiness, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 26(2), pages 280-306.
  4. Shameek Konar & Mark A. Cohen, 2001. "Does The Market Value Environmental Performance?," The Review of Economics and Statistics, MIT Press, MIT Press, vol. 83(2), pages 281-289, May.
  5. Shah, Syed Zulfiqar Ali & Stark, Andrew W. & Akbar, Saeed, 2009. "The value relevance of major media advertising expenditures: Some U.K. evidence," The International Journal of Accounting, Elsevier, Elsevier, vol. 44(2), pages 187-206, June.
  6. Klock, Mark & Megna, Pamela, 2000. "Measuring and valuing intangible capital in the wireless communications industry," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 40(4), pages 519-532.
  7. Petr Hanel & Alain St-Pierre, 2002. "Effects of R & D Spillovers on the Profitability of Firms," Review of Industrial Organization, Springer, Springer, vol. 20(4), pages 305-322, June.
  8. Chen-Lung Chin & Picheng Lee & Hsin-Yi Chi & Asokan Anandarajan, 2006. "Patent Citation, R&D Spillover, and Tobin's Q: Evidence from Taiwan Semiconductor Industry," Review of Quantitative Finance and Accounting, Springer, Springer, vol. 26(1), pages 67-84, February.

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