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

  • Henry G. Grabowksi
  • Dennis C. Mueller

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.

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Article provided by The RAND Corporation in its journal Bell Journal of Economics.

Volume (Year): 9 (1978)
Issue (Month): 2 (Autumn)
Pages: 328-343

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Handle: RePEc:rje:bellje:v:9:y:1978:i:autumn:p:328-343
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