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The size, concentration and evolution of corporate R&D spending in U.S. firms from 1976 to 2010: Evidence and implications

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  • Hirschey, Mark
  • Skiba, Hilla
  • Wintoki, M. Babajide

Abstract

The use of research and development (R&D) spending as an empirical proxy for managerial discretion, information asymmetry and growth opportunities, is pervasive in empirical corporate finance research. Underlying this is the implicit assumption that firms choose levels of R&D to maximize value, given firm and industry characteristics. An alternative framework views the level of R&D spending as subject to idiosyncratic behavior as managers myopically manipulate R&D expenditures to meet short-term earnings goals. Using aggregate firm and industry level data, we find evidence consistent with the view that R&D is determined by firm and industry characteristics. Time invariant firm and industry fixed effects explain most of the cross-sectional variation in observed R&D spending, while time-varying factors like size, profitability, or market-to-book explain little of the cross-sectional variation. We find that R&D spending continues to grow faster than advertising and capital expenditures. We also find no evidence of managerial myopia as corporate aggregate R&D expenditures are growing faster than aggregate profitability and the number of firms that undertake R&D has increased over the period from 1976 to 2010.

Suggested Citation

  • Hirschey, Mark & Skiba, Hilla & Wintoki, M. Babajide, 2012. "The size, concentration and evolution of corporate R&D spending in U.S. firms from 1976 to 2010: Evidence and implications," Journal of Corporate Finance, Elsevier, vol. 18(3), pages 496-518.
  • Handle: RePEc:eee:corfin:v:18:y:2012:i:3:p:496-518
    DOI: 10.1016/j.jcorpfin.2012.02.002
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    References listed on IDEAS

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    Cited by:

    1. Radojko LUKIC, 2016. "The Analysis of the Efficiency of Capital Investments in Trade of Serbia," REVISTA DE MANAGEMENT COMPARAT INTERNATIONAL/REVIEW OF INTERNATIONAL COMPARATIVE MANAGEMENT, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 17(1), pages 12-30, March.
    2. Kadri Männasoo & Heili Hein, 2017. "Are R&D companies credit-constrained? Credit frictions during and post-crisis," TUT Economic Research Series 29, Department of Finance and Economics, Tallinn University of Technology.
    3. Tiago Soares & Samuel Pereira & Elísio Brandão, 2014. "The effects of R&D intensity and tax incentives on firms’ growth - empirical evidence from world's top R&D spending firms between 2003 and 2012," FEP Working Papers 540, Universidade do Porto, Faculdade de Economia do Porto.
    4. Chuluun, Tuugi & Graham, Carol, 2016. "Local happiness and firm behavior: Do firms in happy places invest more?," Journal of Economic Behavior & Organization, Elsevier, vol. 125(C), pages 41-56.
    5. He, Zhaozhao & Wintoki, M. Babajide, 2016. "The cost of innovation: R&D and high cash holdings in U.S. firms," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 280-303.
    6. Kadri Männasoo & Heili Hein, 2017. "Capital investments and financing structure: Are R&D companies different?," TUT Economic Research Series 26, Department of Finance and Economics, Tallinn University of Technology.
    7. repec:eee:respol:v:47:y:2018:i:2:p:440-461 is not listed on IDEAS
    8. Clausen, Saskia & Hirth, Stefan, 2016. "Measuring the value of intangibles," Journal of Corporate Finance, Elsevier, vol. 40(C), pages 110-127.

    More about this item

    Keywords

    Research and development; Information asymmetry; Corporate profit;

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance

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