R&D profitability: the role of risk and Knightian uncertainty

Sara Amoroso, Pietro Moncada-Paternò-Castello and Antonio Vezzani

Small Business Economics, 2017, vol. 48, issue 2, No 6, 343 pages

Abstract: Abstract This paper provides the first empirical attempt of linking firms’ profits and investment in R&D revisiting Knight’s (Risk, uncertainty and profit, Hart, Schaffner & Marx, Boston, 1921) distinction between uncertainty and risk. Along with the risky profit-maximising scenario, identifying a second, off-setting, unpredictable bias that leads to heterogeneous returns to R&D investments is crucial to fully understand the drivers of corporate profits. Consistently with the Knightian theory that relates risk to profitability, we model the impact of risk and uncertainty on profits and provide a first empirical attempt to model the effect of ambiguity, a particular type of uncertainty, on R&D returns.

Keywords: R&D investment; Operating profits; Uncertainty; Ambiguity; Risk premium; D22; D81; L20; L26; O30 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (14)

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Working Paper: R&D profitability: the role of risk and Knightian uncertainty (2015)
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DOI: 10.1007/s11187-016-9776-z

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