NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Interaction Between Capital Investment and R&D in Science-Based Firms

Saul Lach, Mark Schankerman

NBER Working Paper No. 2377
Issued in September 1987
NBER Program(s):   PR

This paper analyzes the interaction among R&D, capital investment , and the stock market rate of return for 191 firms in science-based industries for the period 1973-1981. Using a framework based on dynamic factor analysis, we show how several prominent hypotheses about the determination of R&D and investment generate testable parameter restrictions. The data indicate that R&D Granger-causes investment, but that investment does not Granger-cause R&D. We use this finding to examine the validity of those hypotheses, to characterize the movements over time of R&D and investment, and to measure the stock market valuation of these movements.

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Document Object Identifier (DOI): 10.3386/w2377

Published: "Dynamics of R & D and Investment in the Scientific Sector," Journal of Political Economy, Vol. 97, No. 4, pp. 880-904, August 1989.

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