Gaining Comparative Advantage Through Discretionary Expenditures: The Returns to R&D and Advertising

Gary Erickson and Robert Jacobson
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Gary Erickson: School of Business Administration, University of Washington, Seattle, Washington 98195
Robert Jacobson: School of Business Administration, University of Washington, Seattle, Washington 98195

Management Science, 1992, vol. 38, issue 9, 1264-1279

Abstract: We explore the extent to which R&D and advertising expenditures generate a comparative advantage that allows firms to earn supranormal profits. After controlling for unobserved firm-specific factors and the feedback between discretionary expenditures and profitability, our results suggest substantially lower accounting and stock market returns to R&D and advertising than indicated in previous research. Isolating mechanisms, which prevent imitation, do not appear sufficient for either R&D or advertising expenditures to generate, on the average, a long-run comparative advantage.

Keywords: R&D; advertising; competitive advantage; stock market return; accounting return; discretionary expenditures (search for similar items in EconPapers)
Date: 1992
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