Abstract: R&D investment is characterized by high input, high risks and long return cycle, and profitability is one of the important factors which companies need to consider in R&D decision-making. Distinguished from traditional studies, this paper first analyzes the theoretical relationship between profitability and companies' decision-making from three dimensions:level of earnings, quality of earnings and sustainability of earnings. In the empirical studies, the R&D investment is divided into two stages:the first focus on "whether or not to start the R&D activity" and second focuses on "how much to invest". This paper chooses Heckman two-step estimation and 2SLS to solve the problem of sample selection bias and endogeneity. Based on the micro-data of Chinese listed manufacturing companies, this paper examines the impact of profitability on R&D investment from three dimensions, and the results show that both quality and sustainability of earnings have a significant positive effect on the two stages of R&D investment, but the effect of level of earnings on R&D intensity is not obvious. What's more, the results of heterogeneity test show that the improvement of profitability can promote the R&D investment of private enterprises but can not effectively improve the R&D intensity of state-owned and foreign-funded companies. For technology-intensive companies, quality and sustainability of earnings play a vital role in the promotion of R&D investment, but for labor and capital-intensive companies, there is still a long way to go to achieve transformation and upgrading through innovation.

Key words: profitability, R&D decision-making, Heckman two-step estimation