A Cross-sectional Analysis of Research and Development Expenditures.

Abstract

Long-term economic growth is sustained by research and development activities conducted by private firms, and therefore, understanding how firms make R&D choices is important. In this study, Compustat data is used to econometrically analyze firm choices about research and development (R&D). Examined are both the total amount of money firms spend on R&D activities and the portion of sales revenue firms spend on R&D. Our interpretations are as follows. The model predicts that larger firms, determined by sales revenue and number of people employed, spend more money on R&D activities. In addition, firms whose operations include more business segments commit fewer revenues to innovation, while firms that operate in more geographic areas typically spend more on R&D. Finally, if a firm owns more intangible assets, such as franchise rights and patents or copyrights, it will likely spend more on R&D.