Determinants of Corporate R&d Intensity: Canadian Evidence

This paper empirically explores the determinants of corporate research and development (R&D) intensity in the Canadian context with a sample of 134 TSE companies. Specifically we investigate in cross-section the impact of various governance and firm-specific variables on firms’ R&D intensity. We find that, in the case of governance variables, percentage of inside director, Directors’ ownership, and the dummy variable – whether the chairman of the board is an outsider – are negatively and significantly correlated with a firm’s R&D investment intensity. In the case of firm specific variables, firm Beta (systematic risk) and price to book value are positively correlated with R&D intensity; whereas firms’ relative cash flow, relative debt-equity ratio, and relative total asset are negatively correlated with R&D intensity. However, once we have accounted for endogeneity among these variables a number of earlier observed relationships disappear.