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Industrial Research and Development, Intangible Capital Stocks, and Firm Profit Rates

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  • 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.

Suggested Citation

  • Henry G. Grabowksi & Dennis C. Mueller, 1978. "Industrial Research and Development, Intangible Capital Stocks, and Firm Profit Rates," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 328-343, Autumn.
  • Handle: RePEc:rje:bellje:v:9:y:1978:i:autumn:p:328-343
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    Cited by:

    1. Jaideep Chowdhury & Gokhan Sonaer, 2015. "Investment and Managerial Preferences," Economics Bulletin, AccessEcon, vol. 35(1), pages 392-399.
    2. Kornelius Kraft & Jörg Stank & Ralf Dewenter, 2011. "Co-determination and innovation," Cambridge Journal of Economics, Oxford University Press, vol. 35(1), pages 145-172.
    3. Del Canto, Jesus Galende & Gonzalez, Isabel Suarez, 1999. "A resource-based analysis of the factors determining a firm's R&D activities," Research Policy, Elsevier, vol. 28(8), pages 891-905, November.
    4. Don Fullerton & Andrew B. Lyon, 1988. "Tax Neutrality and Intangible Capital," NBER Chapters,in: Tax Policy and the Economy: Volume 2, pages 63-88 National Bureau of Economic Research, Inc.
    5. 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.
    6. Zannetos, Zenon S. & Papageorgiou, Themis. & Tang, Ming-je., 1981. "Industry analysis in transportation," Working papers 1196-81., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    7. Sydler, Renato & Haefliger, Stefan & Pruksa, Robert, 2014. "Measuring intellectual capital with financial figures: Can we predict firm profitability?," European Management Journal, Elsevier, vol. 32(2), pages 244-259.
    8. Gleason, Katherine I. & Klock, Mark, 2006. "Intangible capital in the pharmaceutical and chemical industry," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(2), pages 300-314, May.
    9. Lev, Baruch & Sougiannis, Theodore, 1996. "The capitalization, amortization, and value-relevance of R&D," Journal of Accounting and Economics, Elsevier, vol. 21(1), pages 107-138, February.
    10. repec:dau:papers:123456789/2641 is not listed on IDEAS
    11. 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.
    12. 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.
    13. Hsiao, Shu-Hua, 2014. "PTE, innovation capital and firm value interactions in the biotech medical industry," Journal of Business Research, Elsevier, vol. 67(12), pages 2636-2644.
    14. Kaiser, Ulrich, 2009. "Patents and profit rates," Economics Letters, Elsevier, vol. 104(2), pages 79-80, August.
    15. Elizabeth Webster, 2002. "Intangible and Intellectual Capital: A Review of the Literature," Melbourne Institute Working Paper Series wp2002n10, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    16. repec:dau:papers:123456789/2248 is not listed on IDEAS
    17. 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.
    18. 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.
    19. Patricia M. Danzon & Eric L. Keuffel, 2014. "Regulation of the Pharmaceutical-Biotechnology Industry," NBER Chapters,in: Economic Regulation and Its Reform: What Have We Learned?, pages 407-484 National Bureau of Economic Research, Inc.

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