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Scale effects of R&D as reflected in earnings and returns

  • Ciftci, Mustafa
  • Cready, William M.
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    Using returns to scale as a conceptual foundation, we explore how R&D-related earnings performance and earnings variability depend upon firm size. We find that the positive association between the level of future earnings and R&D intensity increases with firm size, and that the positive association between the volatility of future earnings and R&D intensity decreases with firm size, consistent with R&D productivity increasing with scale. We also show that R&D scale is associated with lower market returns, consistent with the idea that R&D investment risk declines with scale.

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    Article provided by Elsevier in its journal Journal of Accounting and Economics.

    Volume (Year): 52 (2011)
    Issue (Month): 1 (June)
    Pages: 62-80

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    Handle: RePEc:eee:jaecon:v:52:y:2011:i:1:p:62-80
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