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Does R&D increase the profit contribution of intangible assets? An exploration of European and American automotive supplierss

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  • Stefan Lutz

    (Royal Docks Business School, University of East London)

Abstract

Economic theory implies that research and development (R&D) efforts increase firm productivity and ultimately profits. In particular, R&D expenses lead to the development of intangible assets in the form of intellectual property (IP) and these assets command a return that increases overall profits of the firm. This hypothesis is investigated for the North American and European automotive supplier industries. Results indicate that R&D expenses in fact increase both intangible asset levels and their profit contributions. In particular, increases in the R&D expense to sales ratio lead to increases in the profit contribution of intangible assets relative to sales. This indicates that more R&D intensive IP should command higher royalty rates per sales when licensed to third parties and within multinational enterprises alike. Classification-JEL: D24, L20, L62, M21 Keywords: Productivity; Intellectual property; Royalties; MNE; Transfer pricing. Note: The views expressed in this paper are those of the author and do not necessarily reflect those of the institutions he is affiliated with. The author would like to thank seminar participants at the University of East London for helpful comments and suggestions and Keshav Goel for diligent research assistance. Length: 54 pages

Suggested Citation

  • Stefan Lutz, 2014. "Does R&D increase the profit contribution of intangible assets? An exploration of European and American automotive supplierss," Documentos de Trabajo del ICAE 2014-07, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
  • Handle: RePEc:ucm:doicae:1407
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    References listed on IDEAS

    as
    1. Hall, Bronwyn H. & Mairesse, Jacques & Mohnen, Pierre, 2010. "Measuring the Returns to R&D," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 2, chapter 0, pages 1033-1082, Elsevier.
    2. Lutz, Stefan, 2013. "Risk premia in multi-national enterprises," The North American Journal of Economics and Finance, Elsevier, vol. 25(C), pages 293-305.
    3. Jacques Mairesse & Mohamed Sassenou, 1991. "R&D Productivity: A Survey of Econometric Studies at the Firm Level," NBER Working Papers 3666, National Bureau of Economic Research, Inc.
    4. Stefan Lutz, 2013. "R&D, IP, and firm profits in the automotive supplier industry," Documentos de Trabajo del ICAE 2013-15, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    productivity; intellectual property; royalties; mne; transfer pricing. note: the views expressed in this paper are those of the author and do not necessarily reflect those of the institutions he is affiliated with. the author would like to thank seminar participants at the university of east london for helpful comments and suggestions and keshav goel for diligent research assistance. length: 54 pages;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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