Discussion of “The effect of research and development (R&D) inputs and outputs on the relation between the uncertainty of future operating performance and R&D expenditures”/ created by Theodore Sougiannis

Pandit, Wasley, and Zach (2011) examine whether both research and development (R&D) input (R&D expenditures) and output measures (patent counts and citations) and their interaction associate with the level and variability of future earnings and operating cash flows. The associations examined contribute to the literature because they help determine whether the relationship between firm-level innovation and operating performance is conditional on the success of a firm’s R&D efforts. The conditioning is important because it can sort out more successful from less successful R&D firms. In my discussion, I focus on the models employed and on the empirical results. Some results are consistent with expectations and some other results are not. I think that the mixed results are due to the models employed and I make some suggestions for model improvements.