The determinants of investment variations in research and development

The following study presents and tests a model designed to explain the R&D investment decision of firms, tries to explain the role of certain variables after attempting to isolate the effects of other variables that are not specified in the model and, finally, attempts to estimate departure from the desired level of R & D expenditure and the coefficients of important variables that cause deviations from the level. The main variables discussed are profits, sales changes, expected sales changes, and expected capacity changes. The statistical method used to estimate the parameters of the variables is multiple regression analysis. On the basis of the analysis, several hypotheses are proposed and discussed in relation to alternative hypotheses.