Pitfalls in Estimating the Returns to Corporate R&D Using Accounting Data

CDM Working Papers Series CEMI-WORKING PAPER-2007-003

13 Pages Posted: 3 Jul 2009

See all articles by Dominique Foray

Dominique Foray

Ecole Polytechnique Fédérale de Lausanne - Management of Technology and Entrepreneurship Institute (MTEI)

Bronwyn H. Hall

University of California at Berkeley; National Bureau of Economic Research (NBER); Institute for Fiscal Studies (IFS); Max Planck Institute for Innovation and Competition

Jacques Mairesse

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST); Maastricht University - United Nations and Maastricht Economic Research Institute on Innovation and Technology (UNU-MERIT); National Bureau of Economic Research (NBER)

Date Written: September 1, 2007

Abstract

Does R&D have an impact on firm growth, profits, and value? To most observers, the obvious answer is yes. However, the recent report by Booz-Allen-Hamilton (BAH 2006) seems to conclude that the share of spending devoted to research has no relationship to the economic performance of an enterprise, and offers support to the view that it is possible to compete successfully in the modern economy without investing in R&D. This issue is an important one because the large corporations they considered are responsible for the vast majority of private R&D spending in developed economies, and are therefore important actors in achieving the Lisbon agenda. Challenged by the results and recommendations of the BAH report, in this paper we assess some of the pitfalls to be avoided in using accounting data to estimate corporate R&D returns and illustrate a proper use of such data. We first offer a critique of important aspects of the methodology and of some of the main conclusions in the BAH report. Using similar data and a comparable approach, we then present our own estimates of the impact of R&D on the growth, profitability, and market value of public corporations, and contrast our interpretations and conclusions with that of the report.

Keywords: measurement, evaluation, impact, corporate R&D

Suggested Citation

Foray, Dominique and Hall, Bronwyn H. and Mairesse, Jacques, Pitfalls in Estimating the Returns to Corporate R&D Using Accounting Data (September 1, 2007). CDM Working Papers Series CEMI-WORKING PAPER-2007-003. Available at SSRN: https://ssrn.com/abstract=1427754 or http://dx.doi.org/10.2139/ssrn.1427754

Dominique Foray (Contact Author)

Ecole Polytechnique Fédérale de Lausanne - Management of Technology and Entrepreneurship Institute (MTEI) ( email )

Odyssea
Station 5
Lausanne, 1015
Switzerland

Bronwyn H. Hall

University of California at Berkeley ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

HOME PAGE: http://emlab.berkeley.edu/users/bhhall/index.html

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Institute for Fiscal Studies (IFS)

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

Max Planck Institute for Innovation and Competition

Marstallplatz 1
Munich, Bayern 80539
Germany

Jacques Mairesse

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

Maastricht University - United Nations and Maastricht Economic Research Institute on Innovation and Technology (UNU-MERIT)

Keizer Karelplein 19
6211 TC Maastricht
Netherlands

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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