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Measuring the impact of depreciation on R&D

The existing method for calculating the depreciation rate for a company’s research and development (R&D) considers it constant within a year. However, according to Cheng Jiang, assistant professor of finance, and Peter Chinloy, former professor of finance, this is not accurate. In reality, R&D depreciation varies over time periods and across industries.

These variations occur because of economic and technological changes over time and across industries. Subsequently, the researchers introduce a time-varying R&D depreciation rate which accounts for these nuances. Lastly, Jiang and Chinloy study the effect of time-varying depreciation on demand for R&D investment in the U.S. economy and several innovation-intensive industries.