Research and development, intangible assets and the performance of large Australian companies

This paper analyses two basic questions concerning R&D and the performance of large Australian firms using data from the IBIS data base. First, what factors determine the extent of investment in R&D. Second, what impact does R&D have on the dynamic performance of Australian firms. A review of previous work on these questions is included. In analysing the first question, using a sample of up to 85 firms, we find that technological opportunity is a major determinant of R&D. In addition, it appears that firms which are less "focused" (in terms of diversification of activities) have lower R&D intensities. Firm size appears to have no relationship to R&D intensity. To investigate dynamic performance we use a Tobin q approach which seeks to explain the market value of firms. We find that intangible assets are an important determinant of market value. In particular, we find that contemporaneous R&D expenditure is positively linked to market value. The strength of this relationship depends on the exact sample used. Lastly, firms which have experienced relatively high levels volatility in R&D expenditure appear to have lower market values.