R&D profitability: the role of risk and Knightian uncertainty

R&D profitability: the role of risk and Knightian uncertainty This paper provides the first empirical attempt of linking firms’ profits and investment in R&D revisiting Knight’s (Risk, uncertainty and profit, Hart, Schaffner & Marx, Boston, 1921) distinction between uncertainty and risk. Along with the risky profit-maximising scenario, identifying a second, off-setting, unpredictable bias that leads to heterogeneous returns to R&D investments is crucial to fully understand the drivers of corporate profits. Consistently with the Knightian theory that relates risk to profitability, we model the impact of risk and uncertainty on profits and provide a first empirical attempt to model the effect of ambiguity, a particular type of uncertainty, on R&D returns. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Small Business Economics Springer Journals

R&D profitability: the role of risk and Knightian uncertainty

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Publisher
Springer US
Copyright
Copyright © 2016 by The Author(s)
Subject
Business and Management; Management; Microeconomics; Entrepreneurship; Industrial Organization
ISSN
0921-898X
eISSN
1573-0913
D.O.I.
10.1007/s11187-016-9776-z
Publisher site
See Article on Publisher Site

Abstract

This paper provides the first empirical attempt of linking firms’ profits and investment in R&D revisiting Knight’s (Risk, uncertainty and profit, Hart, Schaffner & Marx, Boston, 1921) distinction between uncertainty and risk. Along with the risky profit-maximising scenario, identifying a second, off-setting, unpredictable bias that leads to heterogeneous returns to R&D investments is crucial to fully understand the drivers of corporate profits. Consistently with the Knightian theory that relates risk to profitability, we model the impact of risk and uncertainty on profits and provide a first empirical attempt to model the effect of ambiguity, a particular type of uncertainty, on R&D returns.

Journal

Small Business EconomicsSpringer Journals

Published: Jul 25, 2016

References

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