Academic journal article Research-Technology Management

Making the Case for R&D Investment

Academic journal article Research-Technology Management

Making the Case for R&D Investment

Article excerpt

It's conceivable that, on average, a 15-20 percent increase in corporate R&D spending, spread over several years, could yield an ROI that exceeds capital investments.

That's the bottom line of a new study of return on chemical industry R&D investment sponsored by the Council for Chemical Research (see Measuring Up: Research and Development Counts for the Chemical Industry, p. 62 this issue).

The study sought to measure the private returns that chemical firms are able to capture from their own R&D investments. Baruch Lev, professor of finance at New York University, and David Aboody, assistant professor at the University of California, found that, on average, every dollar invested in chemical R&D today increases current and future operating income by $1.94 over six years--an average annual return of 17 percent after taxes.

"Thus," they write, "chemical R&D by our estimates is a significant contributor to value creation and growth of chemical companies."

Acknowledging that every corporation is different and that they are not advocating that every company in every industry should boost its R&D, they note that the next phase of their research is intended to answer the question, "Are all R&D types born equal? …

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