Effects of Profitability and Liquidity on R&D Intensity: Japanese and U.S. Companies Compared

Abstract

This study investigates the proposition that Japanese companies have a greater propensity than U.S. companies to sustain commitment to R&D in the face of fluctuating profits and liquidity. The analysis showed that profitability declines led to increased R&D intensity in Japan. These effects were not confined to members of Japanese financial keiretsu, or industrial groups. The R&D intensity of U.S. companies fluctuated directly with two-year lagged profitability and liquidity variables, but these relationships might have been confined to more research-intensive companies.