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Undergraduate Economic Review

Abstract

This paper is an in depth analysis of the influence that investment into research and development has on a firm’s profitability in the pharmaceutical industry in the United States. The pharmaceutical industry is chosen due to its high intensity of research and development expenditures. The top 16 companies in the pharmaceutical industry are analyzed through regression analysis. The argument made is that as more funds are invested into research and development a firm in the pharmaceutical industry will experience a higher market value. Theoretically as firms spend more on research and development they are increasing the likelihood of innovation, which will cause growth in the company. This study finds a positive and significant relationship between research and development expenditures and market value in the pharmaceutical industry.

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