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The interaction between capital investment and r&d in science-based firms

By Saul Lach and Mark Schankerman

Abstract

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

Topics: HG Finance, HB Economic Theory, HD Industries. Land use. Labor
Publisher: National Bureau of Economic Research
Year: 1987
OAI identifier: oai:eprints.lse.ac.uk:5104
Provided by: LSE Research Online
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