The objective of this exploratory paper is to investigate 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.
The research design is based on an earnings equation associating earnings with recorded assets, R&D expenditures and selling, general and administrative expenses (proxying for advertising expenses). The paper determines a rate of return on R&D for each given sample of firms in six developed countries.
The results corroborate previous studies of American companies, which found that reported earnings, adjusted for expensing of R&D, reflect realized benefits from R&D. This study provides further evidence on the positive contribution of R&D activities to future company performance, although this contribution can vary from one country to another.
Being exploratory in nature, this paper suggests several areas for investigation.
With the exception of some American studies, the economic effectiveness of investment in R&D 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.
