HEC Research Papers Series,
HEC Paris

Abstract: The objective of this paper is to explore the impact of R&D expenditures on company performance. R&D activities play an essential role in the future economic development and financial performance of firms. However, with the exception of some American studies, the economic effectiveness of such investment is seldom demonstrated explicitly by the literature, and to the best of our knowledge, there are no existing studies on R&D productivity taking an international approach. Our research design is based on an earnings equation associating earnings with recorded assets, R&D expenditures and selling, general and administrative (SG&A) expenses (proxying advertising expenses). We determine a rate of return on R&D for each given sample of firms in 12 developed countries. Our results corroborate previous studies of American companies, which found that reported earnings, adjusted for the expensing of R&D, reflect realized benefits from R&D. This study confirms the positive contribution of R&D activities to future company performance, although this contribution can vary from one country to another.

Keywords: R&D productivity; R&D profitability; international study

JEL-codes: O32

39 pages, March 1, 2003

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