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Research and development, profits, and firm value: A structural estimation

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  • Missaka Warusawitharana

Abstract

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.

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  • Missaka Warusawitharana, 2015. "Research and development, profits, and firm value: A structural estimation," Quantitative Economics, Econometric Society, vol. 6(2), pages 531-565, July.
    • Handle: RePEc:wly:quante:v:6:y:2015:i:2:p:531-565
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    15. Josheski, Dushko & Magdinceva Sopova, Marija, 2013. "Market value of the firms and R&D investment: Theoretical overview and empirical estimation for the panel of countries," EconStor Preprints 68488, ZBW - Leibniz Information Centre for Economics.
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