Research and Development Intensity, Capital Expenditure Intensity, and Operating Profitability: Evidence from the European Automotive Industry, 2005–2024

Abstract

This study examines whether research and development (R&D) intensity and capital expenditure (Capex) intensity are associated with operating profitability in the European automotive industry. Using firm-level data from the EU Industrial R&D Investment Scoreboard, the analysis covers an unbalanced panel of 852 firm-year observations from 153 European automotive firms over 2005–2024. Operating profitability is measured as operating profit relative to net sales, while R&D intensity and Capex intensity are calculated relative to net sales. The empirical strategy uses panel regression models with firm and year fixed effects, with standard errors clustered at the firm level. The results show that R&D intensity is negatively and significantly associated with contemporaneous operating profitability, suggesting that innovation-related expenditure may place short-term pressure on accounting performance. This relationship weakens after winsorizing extreme observations and does not persist in a one-year lagged specification, suggesting that the effect is mainly short-run. By contrast, Capex intensity shows a positive but statistically insignificant association with operating profitability in the preferred fixed-effects models. The findings indicate that R&D expenditure is more closely related to short-term accounting profitability than tangible capital investment; however, the negative coefficient should not be interpreted as evidence that R&D destroys value. Rather, it reflects short-term accounting pressure and the time lag between innovation expenditure and future returns, and the results should be interpreted cautiously due to sensitivity to outliers and timing effects. UDC: [658.155:622.684]”2005/2024”(4); JEL: M41; G31; O32; L62