Modeling R&D Investments: Analysis of Corporate Financial Data Allows Predicting Current-Year R&D Spending on Basis of Previous-Year Spending

By Smith, Roger | Research-Technology Management, November-December 2006 | Go to article overview

Modeling R&D Investments: Analysis of Corporate Financial Data Allows Predicting Current-Year R&D Spending on Basis of Previous-Year Spending


Smith, Roger, Research-Technology Management


The amount of money invested in R&D is one measure of the degree to which the U.S. and other developed countries are seeking new products and services that cannot be matched by less-developed countries (1-3). Many researchers are conducting studies to determine the degree to which R&D really improves a company's performance (4-7). In this study, I examined published data on the level of R&D investment made by 91 of the top U.S. R&D investors in 2003 and 2004 (Table 1). The goal was to identify a relationship between R&D spending (the dependent variable) and other financial indicators of the company's health (the independent variables). Such a model, and the understanding that accompanies it, should be useful in predicting how companies may invest in the future and at what levels a company might fund new R&D capabilities.

I sought models that could predict future-year spending based on previous-year financials, as well as models that demonstrated a relationship between current-year R&D and financials. The latter models would not have predictive power, but should be useful in identifying when a company's R&D investment is out of line with other top R&D investors.

Previous studies have shown that R&D intensity (R&D divided by Sales) is consistent within a company from one year to another. This statistic is one method of estimating the level of R&D that a company will invest in future years. However, R&D investment may be more complicated--it may be driven by a combination of quantitative factors, which is the focus of this study. It should also be noted that R&D investment is a strategic decision and may change greatly based on the objectives of the company. When major changes occur from one year to another, these cannot be captured in a general quantitative model as presented in this paper.

The study provides a more complete understanding of the data presented in the Industrial Research Institute's annual "R&D Leaderboard" surveys. It also provides a predictive tool for understanding the actions of R&D investors, which are not evident in the raw data published in the annual survey. The study focuses on 91 companies because each year a few companies are displaced from this Top 100 list, and in 2004, nine companies were displaced.

Two limitations to this study should be acknowledged. First, because it was conducted across the top R&D investing firms in the U.S., the data provide a view into only medium and large-sized companies. The largest company by sales in this list is Exxon Mobil, with 2004 sales of $264 billion. The smallest company is Synopsys with sales of $1.09 billion (8). Therefore, the results may not be applicable to smaller companies that have fewer resources or where innovation is applied on a smaller scale.

Second, the firms were all based in the United States. Although many of them have international operations, these companies are American in their legal structure, in the heritage of their management thinking, and in their approach to business. Therefore, the information may not capture practices that are common in other parts of the world. The conclusions and models in this study can be extended by applying the methodology to a larger database of companies that reside all over the world.

Data Set Analyzed

The annual "R&D Leaderboard" data on which this study is based were published in Research-Technology Management (8-14). These papers identify the 100 U.S. and global companies that invest the most in R&D each year. The data are also organized into the top 1,000 U.S. and global companies. These tables may be purchased from the Industrial Research Institute (www.iriinc.org).

The data presented in these surveys are extracted from the Standard & Poor's Compustat database, which S&P has maintained for over 35 years. The database contains records on over 10,000 actively traded U. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Modeling R&D Investments: Analysis of Corporate Financial Data Allows Predicting Current-Year R&D Spending on Basis of Previous-Year Spending
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.