The substitution of capital for knowledge as the main source of progress is the basis for the development of a "knowledge-based economy". Research and development (R & D) is one of the means by which the availability of new knowledge can be increased in an organized manner. The paper, therefore, enquires into such issues as the impact of research and development (R&D) expenditures on the firm’s growth. Brought into focus is the fact that the level of innovation adoption of other firms is not completely an exogenous variable but is directly related to the R&D expenditures incurred by the firm itself. Accordingly, the assumption that the level of innovation adoption is to some extent an endogenous process is brought to the fore.