IDEAS home Printed from
   My bibliography  Save this article

Diminishing marginal returns from R&D investment: evidence from manufacturing firms


  • Robert Faff
  • Yew-Kee Ho
  • Weiling Lin
  • Chee-Meng Yap


This study analyses the association between R&D Investment (RDI) and growth opportunities and show that there exists diminishing marginal returns in manufacturing firms. Extant literature has found that besides R&D investment, systematic risk, financial leverage and complementary asset investment are also associated with growth opportunities. Accordingly, we employ structural equation modelling to simultaneously estimate both a direct influence of RDI as well as indirect influences of RDI on growth opportunities via these three mediating effects. We find that the direct effect of incremental RDI on growth opportunities is independent of R&D intensity. Instead, the heterogeneous effects of RDI on systematic risk, financial leverage and complementary asset investment across firms with different R&D intensity level accounts for the diminishing marginal returns to R&D investment. We specifically observe that the greatest indirect effect is via the financial leverage of the firm. This study shows the importance of accounting for the interdependencies in R&D investment.

Suggested Citation

  • Robert Faff & Yew-Kee Ho & Weiling Lin & Chee-Meng Yap, 2013. "Diminishing marginal returns from R&D investment: evidence from manufacturing firms," Applied Economics, Taylor & Francis Journals, vol. 45(5), pages 611-622, February.
  • Handle: RePEc:taf:applec:45:y:2013:i:5:p:611-622
    DOI: 10.1080/00036846.2011.608644

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Carlos Serrano-Cinca & Yolanda Fuertes-Callén & Begoña Gutiérrez-Nieto & Beatriz Cuellar-Fernández, 2014. "Path modelling to bankruptcy: causes and symptoms of the banking crisis," Applied Economics, Taylor & Francis Journals, vol. 46(31), pages 3798-3811, November.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:applec:45:y:2013:i:5:p:611-622. See general 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: (Chris Longhurst). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.