Open AccessResearch and development, profits, and firm value: A structural estimation
Author(s) -
Warusawitharana Missaka
Publication year - 2015
Publication title -
quantitative economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.062
H-Index - 27
eISSN - 1759-7331
pISSN - 1759-7323
DOI - 10.3982/qe282
Subject(s) - profitability index , counterfactual thinking , economics , value (mathematics) , generalized method of moments , estimation , structural estimation , capital (architecture) , econometrics , distribution (mathematics) , capital intensity , microeconomics , industrial organization , monetary economics , panel data , finance , statistics , mathematics , profit (economics) , management , mathematical analysis , philosophy , archaeology , epistemology , history
This study presents a model in which firms invest in research and development (R&D) to generate innovations that increase their underlying profitability and invest in physical capital to produce output. Estimating the model using a method of moments approach reveals that R&D expenditures contribute significantly to profits and firm value. The model also captures variation in R&D intensity, profits, and firm value across R&D‐intensive industries. Counterfactual experiments suggest that changes in the distribution of firms in the economy may, over the long run, mitigate tax policy changes designed to encourage R&D expenditures.