New Perspectives on Impact of R&D on Corporate Profitability

Rajendar K. Garg; Mukesh K. Chaudhry; Suneel Maheshwari; Rahul Garg

doi:10.65301/dias.2016.13.2.261

Articles 26th Edition of DTR Oct 2016 – Mar 2017

DOI 10.65301/dias.2016.13.2.261

New Perspectives on Impact of R&D on Corporate Profitability

Authors

Professor of Marketing, Eberly College of Business, Indiana University of Pennsylvania Professor of Finance, Eberly College of Business, Indiana University of Pennsylvania Professor of Accounting, Eberly College of Business, Indiana University of Pennsylvania Student of MBA, University of Massachusetts, Amherst

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Published 2017-03-30

Pages 17-21

Abstract

There is a significant ever-growing controversy about the role of R&D in the corporate decision-making structure for the US markets. R&D results have been found to be lack-luster creating erosion of trust in the value of R&D in American corporate world. This study sheds light on the relationship between R&D expenses and corporate profitability. It investigates the direct impact of R&D expenses across industries and found that the results were statistically significant. However, they were not consistent in the direction. The study suggest remedies in the current US accounting standards to properly account for measuring the impact of R&D expenses on corporate profitability. Capitalization of R&D expenses was suggested as an alternative method.

Keywords

R&D Marketing Technology/Research Management Innovations Current and Future corporate profitability

References

Ali, Ashiq, Mustafa Ciftci and William Cready (2012), “Market Underestimation of the Implications of R&D Increases for Future Earnings: The US Evidence”, Journal of Business and Accounting, Vol. 39, No. 3&4, March/April 2012, Pp. 289-314.
Ball, Robert and S. Kothari (1991), “Security Returns Around Earnings Announcements”, Accounting Review, Vol. 66, pp. 718-751.
Chan, Howard, Robert Faff, Philip Gharghori and Yew Ho (2007), “The Relationship Between R&D Intensity and Future Market Returns: Does Expensing versus Capitalization Matter?” Review of the Quantitative Financial Accounting, Vol. 29, Pp. 25-51.
Chan, I, John Lakonishok and Thomas Sougiannis (2001), “The Stock Market Valuation of Research and Development Expenditures”, Journal of Finance, Vol. 56, PP. 2431-2457.
Danielson, Morris and Eric Press (2005), “When Does R&D Expense Distort Profitability Estimates?” Journal of Applied Finance, Fall/Winter 2005, Pp. 76-92.
Hemphill, Thomas A. (2009), “The US Research and Experimentation Tax Credit: The Case for an Effective R&D Investment Policy Incentive”, Innovation: Management Policy and Practice, Vol. 11, No. 3, December 2009, Pp. 341-356.
Iansiti, M (1997), Technology Integration: Making Critical Choices in a Dynamic World, Boston, MA: Harvard Business School Press.
Ip, Greg (2017), “Are We Out of Big Ideas” The Wall Street Journal, Vol. CCLXVIII, No. 134, Wednesday, December 7, 2017, Pp 1 and 12.
Moerloose, Chantal de (2000), “Turning Innovation into Success”, European Business Forum, Vol. 1, Spring 2000, Pp. 29-34.
Porter, Michael (1985), Competitive Advantage: Creating and Sustaining Superior Performance, New York Press.
Porter, Michael (1990), The Competitive Advantage of Nations, New York: Free Press.
Porter, Michael (1996), “What is Strategy”, Harvard Business Review, Vol. 74, No. 6. Pp. 71-68.
Ringel, Michael, Peter Tollman, Greg Hersch and Ulrik Schulze (2013), “Does Size Matter in R&D Productivity? If not, What Does”, Nature Reviews, Vol. 12, December 2013, Pp. 901-902.
Singarayar, Tony (2009), “Erosion of R&D’s Value”, Research Technology Management, Industrial Research Inc. Pp. 20-30.
Smith, B and C. Barfield (eds.) (1996), Technology, R&D and the Economy, Washington DC: The Brookings Institution and American Enterprise Institute.

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Rajendar K. Garg, Mukesh K. Chaudhry, Suneel Maheshwari, Rahul Garg . (2017). New Perspectives on Impact of R&D on Corporate Profitability. DIAS Technology Review, 13(2), 17-21.

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[1] Ali, Ashiq, Mustafa Ciftci and William Cready (2012), “Market Underestimation of the Implications of R&D Increases for Future Earnings: The US Evidence”, Journal of Business and Accounting, Vol. 39, No. 3&4, March/April 2012, Pp. 289-314.

[2] Ball, Robert and S. Kothari (1991), “Security Returns Around Earnings Announcements”, Accounting Review, Vol. 66, pp. 718-751.

[3] Chan, Howard, Robert Faff, Philip Gharghori and Yew Ho (2007), “The Relationship Between R&D Intensity and Future Market Returns: Does Expensing versus Capitalization Matter?” Review of the Quantitative Financial Accounting, Vol. 29, Pp. 25-51.

[4] Chan, I, John Lakonishok and Thomas Sougiannis (2001), “The Stock Market Valuation of Research and Development Expenditures”, Journal of Finance, Vol. 56, PP. 2431-2457.

[5] Danielson, Morris and Eric Press (2005), “When Does R&D Expense Distort Profitability Estimates?” Journal of Applied Finance, Fall/Winter 2005, Pp. 76-92.

[6] Hemphill, Thomas A. (2009), “The US Research and Experimentation Tax Credit: The Case for an Effective R&D Investment Policy Incentive”, Innovation: Management Policy and Practice, Vol. 11, No. 3, December 2009, Pp. 341-356.

[7] Iansiti, M (1997), Technology Integration: Making Critical Choices in a Dynamic World, Boston, MA: Harvard Business School Press.

[8] Ip, Greg (2017), “Are We Out of Big Ideas” The Wall Street Journal, Vol. CCLXVIII, No. 134, Wednesday, December 7, 2017, Pp 1 and 12.

[9] Moerloose, Chantal de (2000), “Turning Innovation into Success”, European Business Forum, Vol. 1, Spring 2000, Pp. 29-34.

[10] Porter, Michael (1985), Competitive Advantage: Creating and Sustaining Superior Performance, New York Press.

[11] Porter, Michael (1990), The Competitive Advantage of Nations, New York: Free Press.

[12] Porter, Michael (1996), “What is Strategy”, Harvard Business Review, Vol. 74, No. 6. Pp. 71-68.

[13] Ringel, Michael, Peter Tollman, Greg Hersch and Ulrik Schulze (2013), “Does Size Matter in R&D Productivity? If not, What Does”, Nature Reviews, Vol. 12, December 2013, Pp. 901-902.

[14] Singarayar, Tony (2009), “Erosion of R&D’s Value”, Research Technology Management, Industrial Research Inc. Pp. 20-30.

[15] Smith, B and C. Barfield (eds.) (1996), Technology, R&D and the Economy, Washington DC: The Brookings Institution and American Enterprise Institute.