R&D Productivity: An Exploratory International Study

Purpose – 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. Design/methodology/approach – 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. Findings – 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. Research limitations/implications – Being exploratory in nature, this paper suggests several areas for investigation. Originality/value – 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.