This paper empirically explores the dynamic interactions among research and development, capital investment, and the stock market performance of 191 firms in science-based industries during the period 1973-81. Using a framework based on dynamic factor analysis, we test asymmetric specifications of the dynamics between R & D and investment. The data indicate that R & D Granger-causes investment but that investment does not Granger-cause R & D. We discuss interpretations of this causal ordering, characterize the stylized facts of the movements over time of R & D and investment, and measure the stock market valuation of these movements.

This paper empirically explores the dynamic interactions among research and development, capital investment, and the stock market performance of 191 firms in science-based industries during the period 1973-81. Using a framework based on dynamic factor analysis, we test asymmetric specifications of the dynamics between R & D and investment. The data indicate that R & D Granger-causes investment but that investment does not Granger-cause R & D. We discuss interpretations of this causal ordering, characterize the stylized facts of the movements over time of R & D and investment, and measure the stock market valuation of these movements.