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Empirical Research on the Profitability of R&D Expenditure: Estimations Based on Firm-level Accounting Data in the Japanese Textile Industry

Hirokazu Yamada and Yuji Nakayama
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Hirokazu Yamada: Osaka Prefecture University, Sakai, Japan
Yuji Nakayama: Osaka Prefecture University, Sakai, Japan

International Journal of Systems and Service-Oriented Engineering (IJSSOE), 2019, vol. 9, issue 1, 20-41

Abstract: Yamada and Nakayama (2018) estimated the profitability of research and development (R&D) expenditures for the Japanese manufacturing industry, using industry-level data. The results of the manufacturing industry are not necessarily reflective of the state of each individual firm. The purpose of this study is to understand the present state of profitability of R&D expenditures in major Japanese textile firms using firm-level financial data. In terms of methodology, a cost-effectiveness model that considers endogeneity between revenue and R&D expenditure, as well as methods from the literature that can be used to analyze even small samples, are used. The methods used in this article will help practitioners better understand the specific circumstances of their own firms. The authors' work quantifies the investment levels of R&D expenditure, presents strategic management challenges around R&D expenditure to advocate for the consideration of rates of return, and urges the establishment of management accounting criteria at the firm level.

Date: 2019
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