Research and development intensity and performance

The relationship between research and development intensity was explored as measured by research and development (R&D) expenditures per employee and several performance variables such as annual sales per employee, asset turn-over, and return on assets. Two exogenous variables are used to control for size, size of firm measured by total assets and risk-taking behavior of the firm measured by debt-equity ratio. The sample was obtained from the Compustat data file for the year 1985, and is restricted to manufacturing firms which report their annual R&D expenditures. The sample consists of 524 firms. R&D expenditures have a positive impact on sales per employee and on return on assets. However, R&D expenditures per employee have a negative impact on asset turn-over. The results of this study suggest that asset turn-over should no longer be viewed as a performance variable. Instead, asset turn-over should be viewed as an intervening variable, as used in this study