Scale Effects of R&D as Reflected in Earnings and Returns

55 Pages Posted: 4 Mar 2010 Last revised: 9 May 2013

See all articles by Mustafa Ciftci

Mustafa Ciftci

American University of Sharjah - School of Business and Management

William M. Cready

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: April 10, 2011

Abstract

Using returns to scale as a conceptual foundation, we explore how R&D-related earnings performance and earnings variability depend upon firm size. We find that the positive association between the level of future earnings and R&D intensity increases with firm size, and that the positive association between the volatility of future earnings and R&D intensity decreases with firm size, consistent with R&D productivity increasing with scale. We also show that R&D scale is associated with lower market returns, consistent with the idea that R&D investment risk declines with scale.

Keywords: Returns to Scale, Research and Development, Profitability, Return Size Effect

JEL Classification: M41, O30, L20

Suggested Citation

Ciftci, Mustafa and Cready, William M., Scale Effects of R&D as Reflected in Earnings and Returns (April 10, 2011). Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=1564255

Mustafa Ciftci

American University of Sharjah - School of Business and Management ( email )

P.O. Box 26666
Sharjah
United Arab Emirates

William M. Cready (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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