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The Interaction Between Capital Investment and R&D in Science-Based Firms

  • Lach, Saul
  • Schankerman, Mark

This paper analyzes the interaction among R&D, capital investment , and the stock market rate of return for 191 firms in science-based industries for the period 1973-1981. Using a framework based on dynamic factor analysis, we show how several prominent hypotheses about the determination of R&D and investment generate testable parameter restrictions. The data indicate that R&D Granger-causes investment, but that investment does not Granger-cause R&D. We use this finding to examine the validity of those hypotheses, to characterize the movements over time of R&D and investment, and to measure the stock market valuation of these movements.

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File URL: http://econ.as.nyu.edu/docs/IO/9396/RR87-36.pdf
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Paper provided by C.V. Starr Center for Applied Economics, New York University in its series Working Papers with number 87-36.

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Length: 40 pages
Date of creation: 1987
Date of revision:
Handle: RePEc:cvs:starer:87-36
Contact details of provider: Postal: C.V. Starr Center, Department of Economics, New York University, 19 W. 4th Street, 6th Floor, New York, NY 10012
Phone: (212) 998-8936
Fax: (212) 995-3932
Web page: http://econ.as.nyu.edu/object/econ.cvstarr.html
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Order Information: Postal: C.V. Starr Center, Department of Economics, New York University, 19 W. 4th Street, 6th Floor, New York, NY 10012
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  1. M. Ishaq Nadiri & Sherwin Rosen, 1973. "A Disequilibrium Model of Demand for Factors of Production," NBER Books, National Bureau of Economic Research, Inc, number nadi73-1, October.
  2. Douglas Holtz-Eakin & Whitney K. Newey & Harvey S. Rosen, 1989. "Implementing Causality Tests with Panel Data, with an Example from LocalPublic Finance," NBER Technical Working Papers 0048, National Bureau of Economic Research, Inc.
  3. Kleidon, Allan W, 1986. "Variance Bounds Tests and Stock Price Valuation Models," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 953-1001, October.
  4. Jacques Mairesse & Alan K. Siu, 1982. "An Extended Accelerator Model of R&D and Physical Investment," NBER Working Papers 0968, National Bureau of Economic Research, Inc.
  5. Zvi Griliches, 1998. "Issues in Assessing the Contribution of Research and Development to Productivity Growth," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 17-45 National Bureau of Economic Research, Inc.
  6. Pakes, Ariel, 1985. "On Patents, R&D, and the Stock Market Rate of Return," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 390-409, April.
  7. Rosenberg, Nathan, 1969. "The Direction of Technological Change: Inducement Mechanisms and Focusing Devices," Economic Development and Cultural Change, University of Chicago Press, vol. 18(1), pages 1-24, Part I Oc.
  8. LeRoy, Stephen F & Porter, Richard D, 1981. "The Present-Value Relation: Tests Based on Implied Variance Bounds," Econometrica, Econometric Society, vol. 49(3), pages 555-74, May.
  9. Pakes, Ariel & Griliches, Zvi, 1980. "Patents and R&D at the firm level: A first report," Economics Letters, Elsevier, vol. 5(4), pages 377-381.
  10. Thomas J. Sargent & Christopher A. Sims, 1977. "Business cycle modeling without pretending to have too much a priori economic theory," Working Papers 55, Federal Reserve Bank of Minneapolis.
  11. Lucas, Robert E, Jr & Prescott, Edward C, 1971. "Investment Under Uncertainty," Econometrica, Econometric Society, vol. 39(5), pages 659-81, September.
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