Investments in firms consist of the expenditures for tangible and intangible assets. Eachinvestment has different objectives and characteristics. The expenditures for tangible assetsare the investments for present products, while the expenditures for intangible assets are theinvestments for future products. There is higher level of uncertainty in the expenditures forintangible than those for tangible assets. Therefore, firms should find optimal mix between theexpenditures for tangible and intangible assets. This study examines the differential effects of the expenditures for tangible and intangibleassets on the profitability and the value of firms and the change of the effects over a 20-yearperiod. We focus on the components of intangible assets such as R&D expenditures, advertisingexpenses and training expenses. Our sample consists of 197 companies continuously listed onthe Korea Stock Exchange over the 20 years from 1989 to 2008. Each firm should have R&Dexpenditures for at least 8 of the 20 years. We review the effects of investments in tangible andintangible assets on firms’ operating incomes and Tobin Q’s across these 20 years. Further, wedecompose the elements of intangible expenditures and examine the effect of each componentsuch as R&D, advertizing and training expenditures. We find significantly positive effects of both tangible and intangible asset investment onearnings, and the effect of intangible assets is stronger than that of tangible assets. Advertisingexpenses consistently affect earnings, while the significance of R&D expenditures decreasesafter 2000. Tobin’s Q analysis shows that tangible assets have significant effects on a firm’s value only before 2000, while the effect of intangible assets is consistently significant acrossthe 20 years. R&D expenditures are the most critical value driver among the expenditures forintangible assets, and the effect is stronger in R&D intensive industries. The evidence impliesthat R&D expenditures affect long term value rather than short term earnings of firms. This study compares the performance of tangible and intangible assets for 20 years and analyzesthe change in the influence of each asset. The evidence suggests that both expenditures fortangible and intangible assets affect the profitability and the value of firms. The expendituresfor intangible assets, especially R&D expenditures, are the most critical factor of firm’s valuein a knowledge-based economy after 2000. The results may be affected by survivorship bias,and the analysis can be extended to the consideration of successful strategies of firms.