The changing implications of research and development expenditures for future profitability
We document strong evidence of a declining relation between R&D and future profitability, which coincides with a number of important economic changes, including a significant increase in R&D spending. We identify several contributors to this decline, including changes in the nature and riski...
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Published in | Review of accounting studies Vol. 25; no. 2; pp. 405 - 437 |
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Main Authors | , , |
Format | Journal Article |
Language | English |
Published |
New York
Springer US
01.06.2020
Springer Nature B.V |
Subjects | |
Online Access | Get full text |
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Summary: | We document strong evidence of a declining relation between R&D and future profitability, which coincides with a number of important economic changes, including a significant increase in R&D spending. We identify several contributors to this decline, including changes in the nature and riskiness of R&D projects and a shift in the types of firms undertaking R&D in our sample. We also demonstrate variation in the implications of R&D for future profitability, consistent with diminishing marginal returns to R&D investments. Overall, our evidence suggests that, in earlier periods, investments in R&D offered high returns in U.S. public firms but that in more recent times these returns have stabilized at lower levels. Our study offers important insights for financial statement users, managers, and researchers. |
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ISSN: | 1380-6653 1573-7136 |
DOI: | 10.1007/s11142-019-09528-6 |