This study investigates the influence of the source of R&D funds and management ownership on R&D productivity. The lagged effect of the source of R&D funds on R&D output is investigated for a sample of US manufacturing firms in five industries over the 1996–99 period. Estimates based on 779 firm-years show that R&D productivity increases with the proportion of stock held by managers and directors of firms primarily in the Other Electronics industry. The estimates also show that recipients of government-sponsored R&D funds in the Chemicals industry have lower levels of output (sales) for each dollar committed to R&D. In addition, output for firms in the Chemicals industry worsens as management stockholding increases, implying an agency cost rationale for the observed difference in output. The implication is that firms with high manager-owner content are less productive with government-sponsored R&D than with company-financed R&D. The reported results suggest that potential agency costs should be incorporated in government-sponsored R&D contracts. It also suggests that the source of R&D funds should be disclosed and incorporated into the valuation of intangible assets attributable to research and development.