The Optimal Enterprise R&D Investment Strategy Based on CRRA Utility function

In CRRA (Constant Relative Risk Aversion) theory, we analysis factors influencing the optimal R&D investment. The theoretical model points out that the optimal R&D investment depends on three factors: the expected profits growth, the critical level of accumulated investment on R&D and the company´s risk preference (the volatility of future cash flows). By the empirical analysis of 156 listed companies in Yangtze River Delta Region, we find that the increasing expected profits and the volatility of company´s cash flow are positively correlated with the optimal R&D investment, but have nothing to do with firm size.