Measurement of R&D Investment by Firm and Multiple q: Analysis of Investment Behaviors by Capital Good at Listed Japanese Firms

In this paper, we measure R&D investment and stock data for listed enterprises in Japan and examine R&D investment behavior as well as tangible ones under the framework of Tobin fs q theory. We estimate Multiple q investment functions, modified Tobin fs q investment functions considering the heterogeneity of capital goods, and verify whether adding R&D as a new capital good improves the performance of the investment function estimation. Our measurement shows that the share of R&D stock to total stocks is more than 25% and that adding R&D as a new capital stock reduces the upward bias of average q as predicted from our theoretical analysis. In addition, we show that the performance of the Multiple q investment function improves: the coefficient of determination increases with the number of capital goods whose adjustment cost parameters are positive and estimated to be significant. On the other hand, even after considering R&D investment, redundant variables under the standard Tobin fs q theory (cash flow ratio and interest - bearing debt ratio) continue to have strong explanatory power. Comparing the estimated values of adjustment cost parameter ƒÁ among capital goods, we find that R&D investment has, in particular, a strong correlation with the accumulation of other intangible assets. An international comparison of growth accounting suggests that for Japan fs economic growth, it is desirable to implement policies that emphasize the accumulation of intangible assets rather than tangible fixed assets. At the very least, R&D can be captured on financial statements, making it possible to devise stimulus policies, such as investment tax cuts. This suggests that economic policies focused explicitly on stimulating R&D investment may, nevertheless, lead to policies that emphasize intangible asset accumulation more generally.