Regression Models for Company Expenditures on and Returns from Research and Development

Data were gathered on the research expenditures, sales, and profits of a sample of large firms which had been conducting organized research for 25 years or more. A linear relationship is hypothesized for explaining the size of the research budget. Several factors influencing the size of the research budget are examined. A regression model is developed for expressing the returns on R and D expenditures, with lags up to six years. Suggestions are made for the application and possible uses of the method by an individual firm.