R&D, advertising, and profits: Economic theory, empirical evidence, and consequences for transfer pricing policy

1999 1999

Other formats: Order a copy

Abstract (summary)

This dissertation analyzes the effect of R&D and advertising on profitability from the perspective of transfer pricing analysis. After providing a review of the theoretical and economic literature on R&D and advertising, it examines the standard financial models applied to intangible asset valuation and finds them lacking. The dissertation then examines the empirical relationship between R&D, advertising, and profitability in greater detail using financial data for publicly-listed manufacturing firms over the period 1950–1998. As expected, the analysis confirms that current-period advertising and R&D have a significant impact on current-period profitability. For transfer pricing analysis, establishing the relative contribution of R&D and advertising to profitability is an important consideration. These results suggest that the impact of advertising on profitability is considerably closer to the impact of R&D than the literature review suggests. This dissertation also estimates various distributed lag models to determine the relative duration of advertising and R&D, although these models do not provide robust results. As an alternative, an estimate of the relative duration of advertising and R&D is derived from a financial market valuation approach. These results support the conclusion that the duration of advertising's effect on profitability is considerably closer to that of R&D than previous studies have suggested. Both the relative magnitude and the relative duration of advertising and R&D effects have important ramifications for transfer pricing policies. This dissertation then examines geographical segment data for manufacturing firms over the period 1991–1996, in order to determine whether there is evidence that is consistent with the hypothesis that MNCs use cross-border technology payments to minimize their overall tax burden. While the evidence is not conclusive, it does show that firms with greater R&D intensity have greater profitability differences between the parent companies and their foreign locations, and that these profitability differences are positively correlated with tax differentials. These results suggest the need for greater clarity and consistency in the development of international tax regulations on intercompany transactions involving intangible assets.

Indexing (details)

0501: Economics
0338: Marketing
Identifier / keyword
Social sciences; Advertising; Economic theory; Profits; R&D; Transfer pricing policy
R&D, advertising, and profits: Economic theory, empirical evidence, and consequences for transfer pricing policy
DeRamus, David W.
Number of pages
Publication year
Degree date
School code
DAI-A 60/11, Dissertation Abstracts International
Place of publication
Ann Arbor
Country of publication
United States
9780599530041, 0599530049
Shepherd, William Geoffrey
University of Massachusetts Amherst
University location
United States -- Massachusetts
Source type
Dissertations & Theses
Document type
Dissertation/thesis number
ProQuest document ID
Database copyright ProQuest LLC; ProQuest does not claim copyright in the individual underlying works.
Document URL
Access the complete full text

You can get the full text of this document if it is part of your institution's ProQuest subscription.

Try one of the following:

  • Connect to ProQuest through your library network and search for the document from there.
  • Request the document from your library.
  • Go to the ProQuest login page and enter a ProQuest or My Research username / password.