Research and Development As An Investment
AbstractAbout 20 percent of the gross investment expenditures of U.S. manufacturing firms is expenditures on research and development. Like investment in physical capital, R&D also responds to news about future prospects of the firm, such as profitability, technological opportunities, or changes in factor prices. Using data from a panel of large U.S. manufacturing firms that was developed within the Productivity Program of the NBER, we investigate the differential responses of these two types of investment to changes in the value of the firm's assets as perceived by financial markets and the interaction of these responses. In order to study this topic empirically, we develop a stochastic dynamic programming model of a firm with two types of capital (physical and knowledge capital) which are used to produce profits. A feature of the model is the distinction between the accumulation of the two kinds of capital: expenditures on the physical capital stock are incurred one or more years before the capital actually becomes productive, whereas R&D capital is produced jointly as a function of current expenditure and the past technological position of the firm. Two individual firm specific shocks are considered: one to the overall profitability of the firm, and one to the "productivity" of R&D. In the empirical estimates, we find that these two shocks account for about 20 percent of the total variance in net investment, 15 percent of the variance in the firm-level R&D to capital ratio, but only about 5 percent of the annual rates of return. The profitability shock is well described by a moving average process of order three, while the technology shock process is more nearly permanent: first order autoregressive with parameter near unity.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2973.
Date of creation: May 1989
Date of revision:
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Other versions of this item:
- Hall, Bronwyn H. & Hayashi, Fumio, 1989. "Research and Development as an Investment," Department of Economics, Working Paper Series qt8br8d266, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Bronwyn H. Hall and Fumio Hayashi., 1989. "Research and Development as an Investment," Economics Working Papers 89-108, University of California at Berkeley.
- NEP-ALL-2000-01-07 (All new papers)
- NEP-DEV-2000-01-07 (Development)
- NEP-FIN-2000-01-07 (Finance)
- NEP-INO-2000-01-07 (Innovation)
- NEP-TID-2000-01-17 (Technology & Industrial Dynamics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Poterba, James M. & Summers, Lawrence H., 1988.
"Mean reversion in stock prices : Evidence and Implications,"
Journal of Financial Economics,
Elsevier, vol. 22(1), pages 27-59, October.
- James M. Poterba & Lawrence H. Summers, 1989. "Mean Reversion in Stock Prices: Evidence and Implications," NBER Working Papers 2343, National Bureau of Economic Research, Inc.
- Pakes, Ariel, 1985.
"On Patents, R&D, and the Stock Market Rate of Return,"
Journal of Political Economy,
University of Chicago Press, vol. 93(2), pages 390-409, April.
- Pakes, Ariel, 1985. "On Patents, R & D, and the Stock Market Rate of Return," Scholarly Articles 3436409, Harvard University Department of Economics.
- Kydland, Finn E & Prescott, Edward C, 1982.
"Time to Build and Aggregate Fluctuations,"
Econometric Society, vol. 50(6), pages 1345-70, November.
- Finn E. Kydland & Edward C. Prescott, 1982. "Web interface for "Time to Build and Aggregate Fluctuations"," QM&RBC Codes 4a, Quantitative Macroeconomics & Real Business Cycles.
- Finn E. Kydland & Edward C. Prescott, 1982. "Executable program for "Time to Build and Aggregate Fluctuations"," QM&RBC Codes 4, Quantitative Macroeconomics & Real Business Cycles.
- Epstein, Larry G & Denny, Michael G S, 1983. "The Multivariate Flexible Accelerator Model: Its Empirical Restrictions and an Application to U.S. Manufacturing," Econometrica, Econometric Society, vol. 51(3), pages 647-74, May.
- Hayashi, Fumio, 1982.
"Tobin's Marginal q and Average q: A Neoclassical Interpretation,"
Econometric Society, vol. 50(1), pages 213-24, January.
- Fumio Hayashi, 1981. "Tobin's Marginal q and Average a : A Neoclassical Interpretation," Discussion Papers 457, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Bronwyn H. Hall & Zvi Griliches & Jerry A. Hausman, 1986. "Patents and R&D: Is There A Lag?," NBER Working Papers 1454, National Bureau of Economic Research, Inc.
- Zvi Griliches, 1984.
"Market Value, R&D, and Patents,"
in: R & D, Patents, and Productivity, pages 249-252
National Bureau of Economic Research, Inc.
- Pakes, Ariel & Griliches, Zvi, 1984.
"Estimating Distributed Lags in Short Panels with an Application to the Specification of Depreciation Patterns and Capital Stock Constructs,"
Review of Economic Studies,
Wiley Blackwell, vol. 51(2), pages 243-62, April.
- Ariel Pakes & Zvi Griliches, 1984. "Estimating Distributed Lags in Short Panels with an Application to the Specification of Depreciation Patterns and Capital Stock Constructs," NBER Working Papers 0933, National Bureau of Economic Research, Inc.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.