R&D, Expected Profitability, and Expected Returns

51 Pages Posted: 30 Jan 2023 Last revised: 13 Apr 2023

See all articles by Amit Goyal

Amit Goyal

University of Lausanne; Swiss Finance Institute

Sunil Wahal

Arizona State University (ASU) - Finance Department

Date Written: January 27, 2023


Current R&D expenditures forecast cash-based operating profitability up to three years in the future and sometimes as much as ten years, but do not forecast asset growth. High R&D firms have positive loadings on a cash-based operating profitability factor, and zero alphas. Capitalizing R&D to augment book values with intangible assets is unnecessary for asset pricing, so long as expected profitability is explicitly recognized as a determinant of expected returns.

Keywords: Research & Development, Intangibles, Profitability, Asset Pricing, Expected Returns, Accruals

JEL Classification: G11, G12, G13

Suggested Citation

Goyal, Amit and Wahal, Sunil, R&D, Expected Profitability, and Expected Returns (January 27, 2023). Available at SSRN: https://ssrn.com/abstract=4339765 or http://dx.doi.org/10.2139/ssrn.4339765

Amit Goyal (Contact Author)

University of Lausanne ( email )

Batiment Extranef 226
Lausanne, Vaud CH-1015
+41 21 692 3676 (Phone)
+41 21 692 3435 (Fax)

HOME PAGE: http://www.hec.unil.ch/agoyal/

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4

Sunil Wahal

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

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