%0 Journal Article
%J IEEE Transactions on Engineering Management
%D 2003
%T The Return on R&D Versus Capital Expenditures in the Pharmaceutical and Chemistry Industies
%A Hsieh,Ping-Hung
%A Mishra,C. S.
%A Gobeli,Dave
%K Strategy & Entrepreneurship
%K Supply Chain
%X The impact of research and development (R&D) on firm performance is generally agreed to be positive, but the nature and extent of this impact share little agreement in the previous research. Using an improved, time series, cross-sectional regression model that accounts for both contemporaneous and firm-specific serial correlation, as well as the feedback between firm profitability and investments, our study compares the rate of return from a dollar investment on R&D to a dollar investment on fixed assets in pharmaceutical and chemical industries. We find positive associations of R&D intensity and all variables of firm performance (net margin, operating margin, sales growth, and market value). We find that an investment in R&D earns an operating margin return much higher than the industry cost of capital. We also find that the effect of an investment in R&D on the firm's market value is about twice as much the effect of an investment in fixed assets. These findings have implications for corporate investment strategies, indicating that additional R&D investment is more likely to provide a firm with a unique and sustainable competitive advantage.
%B IEEE Transactions on Engineering Management
%V 50
%P 141 -150
%8 2003
%G eng
%N 2
%2 a
%4 646096896
%$ 646096896