THE IMPACT OF R&D ACTIVITY ON THE BUSINESS PERFORMANCE OF HIGH-TECHNOLOGY COMPANIES

Ivana Janjić, Bojan Krstić, Sandra Milanović

DOI Number
https://doi.org/10.22190/FUEO220707018J
First page
253
Last page
271

Abstract


This paper aims to examine the influence of R&D activity on the business performance of high-technology companies. In order to provide an empirical investigation of the impact of R&D activity on the business performance of high-technology companies, correlation and regression analyses have been utilized.

This study discovered that investment in R&D has a positive influence on EBIT, net earnings, EBITDA, and total assets, while its influence on ROA was confirmed to be statistically significant and negative. Additionally, the influence of R&D intensity performance indicator (RDI) on ROA as a short-term financial performance indicator was not confirmed. The study revealed that return on R&D investment (RORDI) has a statistically significant and positive influence on ROA in the current, observed year.

The evaluation of the obtained results can be a basis for drawing more detailed conclusions, contributing to the future R&D strategy and existing literature, and emphasizing the importance of R&D investment for various business performances.

The originality of this study is reflected in the comprehensive analysis of the influence of specific indicators of R&D activity, such as RORDI, on the business performance of high-technology companies. This paper is also beneficial because none of the existing studies have explored the impact of investment in R&D on EBITDA.


Keywords

R&D activity, R&D investment, business performance, profitability

Full Text:

PDF

References


Abrahams, T., & Sidhu, B. (1998). The Role of R&D Capitalisations in Firm Valuation and Performance Measurement. Austrailan Journal of Management, 23(2), 169-183. https://doi.org/10.1177/031289629802300203

Alarcon, S., & Sanchez, M. (2013). External and Internal R&D, Capital Investment and Business Performance in the Spanish Agri-Food Industry. Journal of Agricultural Economics, 64 (3), 654-675. https://doi.org/10.1111/1477-9552.12015

Ameer, R., & Othman, R. (2020). Industry structure, R&D intensity, and performance in New Zealand: New insight on the Porter hypothesis. Journal of Economic Studies, 47(1), 91-110. https://doi.org/10.1108/JES-05-2018-0185

Amir, E., Guan, Y., & Livne, G. (2007). The Association of R&D and Capital Expenditures with Subsequent Earnings Variability. Journal of Business Finance&Accounting, 34(1), 222-246. https://doi.org/10.1111/j.1468-5957.2006.00651.x

Anagnostopoulou, S. C., & Levis, M. (2008). R&D and performance persistence: Evidence from the United Kingdom. The International Journal of Accounting, 43(3), 293-320. https://doi.org/10.1016/j.intacc.2008.06.004

Archarungroj, P., & Hoshino Y. (1999). Firm Size and R&D on Profitability: An Empirical Analysis on Japanese Chemical and Pharmaceutical Industry. Japanese Journal of Administrative Science, 13(2), 71-86.

Awano, G., Franklin, M., Haskel, J., & Kastrinaki, Z. (2010). Measuring Investment in Intangible Assets in the UK: Results from a New Survey. Economic & Labour Market Review, 4(7), 66–71. https://doi.org/10.1057/elmr.2010.98

Aytekin, S., & Özçalık, S. G. (2018). Relationship between R&D Expenditure and Financial Performance on Technology and Information Technology Indices Firms in Borsa Istanbul. Special Issue on International Conference on Empirical Economics and Social Science (ICEESS), 27-28 June, Bandirma, Turkey. http://dx.doi.org/10.17130/ijmeb.964849

Ballester, M., Garcia-Ayuso, M., & Livnat, J. (2010). The economic value of the R&D intangible asset. European Accounting Review, 12(4), 605-633. https://doi.org/10.1080/09638180310001628437

Benavente, J. M., Gregorio, J., & Nunez, M. (2006). Rates of Return for Industrial R&D in Chile. Working Papers, wp220, University of Chile, Department of Economics.

Bloemendaal, E. (2020). The effects of R&D investments on financial performance: a comparison between high-tech and non-high-tech companies (Bachelor's thesis, University of Twente).

Branch, B. (1974). Research and Development Activity and Profitability: A Distributed Lag Analysis. Journal of Political Economy, 82(5), 999-1011. https://doi.org/10.1086/260252

Caglar, M., & Nisel, R. N. (2017). Impact of marketing and R&D expenditures on financial performance: a research in manufacturing industry. Research Journal of Business Management, 4(3), 359-371. https://dx.doi.org/10.17261/Pressacademia.2017.713

Chan, L. K., Lakonishok, J., & Sougiannis, T. (2001). The stock market valuation of research and development expenditures. The Journal of Finance, 6, 2431-2455. https://dx.doi.org/10.1111/0022-1082.00411

Chao, H. W. (2011). Clarifying the Effects of R&D on Performance: Evidence from the High Technology Industries. Asia Pacific Management Review, 16(1), 51-64. https://doi.org/10.6126/APMR.2011.16.1.04

Chao, R. O., & Kavadias. (2013). R&D intensity and the new product development portfolio. IEEE Transactions on Engineering Management, 60(4), 664-675. https://doi.org/10.1109/TEM.2013.2257792

Chen, M., Cheng, S. J., & Hwang, Y. (2005). An empirical investigation of the relationship between intellectual capital and firms’ market value and financial performance. Journal of Intellectual Capital, 6(2), 159-175. https://doi.org/10.1108/14691930510592771

Chen, T. C., Guo, D. Q., Chen, H. M., & Wei, T. T. (2019). Effects of R&D intensity on firm performance in Taiwan’s semiconductor industry. Economic research - Ekonomska istraživanja, 32(1), 2377-2392. https://doi.org/10.1080/1331677X.2019.1642776

Christensen, C.M, & van Bever, D. (2014). The Capitalists Dilemma. Hardvard Business Review, 92, 60-68.

Ciftci, M., & Cready, W. (2011). Scale effects of R&D as reflected in earnings and returns. Journal of Accounting and Economics, 52(1), 62-80. http://dx.doi.org/10.1016/j.jacceco.2011.02.003

Cincera, M., & Veugelers, R. (2014). Differences in the rates of return to R&D for European and Us young leading R&D firms. Research Policy, 43(8), 1413-1421. https://doi.org/10.1016/j.respol.2014.03.004

Cohen, L., Diether, K., & Mally, C. (2013). Misvaluing Innovation. Review of Financial Studies, 26(3), 635-666. https://doi.org/10.1016/j.respol.2014.03.004

David, P., O’Brien, J. P., & Yoshikawa, T. (2008). The Implications of Debt Heterogeneity for R&D Investment and Firm Performance. The Academy of Management Journal, 51(1), 165-181. https://doi.org/10.2307/20159500

Delmar, F., McKelvie, A., & Wennberg, K. (2013). Untangling the relationships among growth, profitability and survival in new firms. Technovation, 33(8-9), 276-291. https://doi.org/10.1016/j.technovation.2013.02.003

Dyrnes, M., & Friestad, O. J. (2020). The effect of R&D on financial performance. Master Thesis of Science in Business Administration. Universitetet of Stavanger

Ehie, I. C., & Olibe, K. (2010). The effect of R&D investment on firm value: An examination of US manufacturing and service industries. International Journal of Production Economics, 128(1), 127-135. https://doi.org/10.1016/j.ijpe.2010.06.005

Grabowski, H. G., & Mueller, D. C. (1988). Industrial Research and Development, Intangible Capital, and Firm Profit Rates. Bell Journal of Economics, 9(2), 328-343. https://doi.org/10.2307/3003585

Gui-long, Z., Zhang, Y., Kai-hua, C., & Jiang, Y. (2017). The impact of R&D intensity on firm performance in an emerging market: Evidence from China’s electronics manufacturing firms. Asian Journal of Technology Innovation, 25(1), 41-60. https://doi.org/10.1080/19761597.2017.1302492

Guo, C., Sarkar, S., Zhu, J., & Wang, Y. (2020). R&D investment, business performance, and moderating role of Guanxi: Evidence from China. Industrial Marketing Management, 91, 55-63. https://doi.org/10.1016/j.indmarman.2020.08.014

Guo, D., Guo, Y., & Jiang, K. (2016). Government-subsidized R&D and firm innovation: Evidence from China. Research Policy, 45(6), 1129-1144. https://doi.org/10.1016/j.respol.2016.03.002

Hall, B. H., & Oriani, R. (2006). Does the market value R&D investment by European firms? Evidence from a panel of manufacturing: firms in France, Germany and Italy. International Journal of Industrial Organization, 24(5), 971-993. https://doi.org/10.1016/j.ijindorg.2005.12.001

Hazarika, N. (2021). R&D Intensity and Its Curvilinear Relationship with Firm Profitability: Perspective from the Alternative Energy Sector. Sustainability, 13, 5060. https://doi.org/10.3390/su13095060

Helfert, E. A. (2000). Techniques of Financial Analysis: A Guide to Value Creation (10th Edition). McGraw-Hill.

Hirschey, M. (1982). Intangible capital assets of advertising and R&D expenditure. Journal of Industrial Economy, 30(4), 375-390. https://doi.org/10.2307/2097924

Hsieh, P. H., Mishra, C., & Gobeli, D. (2003). The return on R&D versus capital expenditure in pharmaceutical and chemical industries. IEEE Transactions on Engineering Management, 50(2), 141-150. https://doi.org/10.1109/TEM.2003.810828

Isaac, A., Xu, X., Mangudhla, T., & Mensah, D.B. (2021). The impact of R&D Investment on Firm Performance: through Moderating Effect of Investor Sentiment. Journal of Quantative Finance and Economics, 3(1), 70-98.

Jaisinghani, D. (2016). Impact of R&D on profitability in the pharma sector: An empirical study from India. Journal of Asia Business Studies, 10(2), 194-210. https://doi.org/10.1108/JABS- 03-2015-0031

Janjić, I., & Rađenović, T. (2019). The importance of managing innovations in modern enterprises. Ekonomika, 65(3), 45-54. https://doi.org/10.5937/ekonomika1903045J

Jin, S. H., & Choi, S. O. (2019). The effect of innovation capability on business performance: A focus on IT and business service companies. Sustainability, 11(9), 1-15. https://doi.org/10.3390/su11195246

Jovanović, M., Krstić, B., & Janjić, I. (2021). Key determinants of sustainable intellectual capital of enterprises. Economics of Sustainable Development, 5(1), 13-22. https://doi.org/10.5937/ESD2101013J

Jui, H. F., Yen, C. M., Cheng, C. Y., & Chieh, W. W. (2013). An empirical study on the relationship between R&D and financial performance. Journal of Applied Finance & Banking, 3(5), 107-119.

Jung, S., & Kwak, G. (2018). Firm Characteristics, Uncertainty and Research and Development (R&D) Investment: The Role of Size and Innovation Capacity. Sustainability, 10(5), 1668. https://doi.org/10.3390/su10051668

Karl-Heinz, L. (2005). Managing and reporting intangible assets in research technology organizations. R&D Management, 35(2), 125-136. https://doi.org/10.1111/j.1467-9310.2005.00378.x

Kiraci, M., Celikay, F., & Celikay, D. (2016). The Effects of Firms R&D Expenditures on Profitability: An Analysis with Panel Error Correction Model for Turkey. International Jouranl of Business and Social Science, 7(5), 233-240.

Kothari, S. P., Laguerre, T. E., & Leone, J. A. (2002). Capitalization versus expensing: Evidence on the uncertainty of future earnings from capital expenditures versus outlays. Review of Accounting Studies, 7(4), 355-382. https://doi.org/10.1023/A:1020764227390

Kounnou, V., & Kyrkilis, D. (2020). Competitiveness, Profitability and R&D intensity: The Case of the Domestic Pharmaceutical Industry in Greece. In: Horobet. A., Polychronidou, P. & Karasavvoglou, A. (Eds.), Performance and Financial Institutitons in Europe (pp. 47-55). Springer

Krstić, B., & Bonić, Lj. (2016). EIC: A new tool for intellectual capital performance measurement. Praque economic paper, 25(6), 723-741. https://doi.org/10.18267/j.pep.586

Krstić, B., & Rađenović, T. (2018). Strategijsko i operativno upravljanje intelektualnim kapitalom preduzeća [Strategic and operational management of the company's intellectual capital]. Niš: Ekonomski fakultet.

Lee, K. M., & Lee, G. C. (2007). The Effect of R&D Investment for the Business Performance of the Firms in Korean Pharmaceutical Industry. The Journal of Professional Management, 10(2), 81-101.

Lev, B., & Sougiannis, T. (1996). The capitalization, amortization, and value-relevance of R&D. Journal of Accounting and Economics, 21(1), 107–138. https://doi.org/10.1016/0165-4101(95)00410-6

Lin, B. Y., & Hung, S. (2006). R&D intensity and commercializaiton orientation effects on financial performance. Journal of Business Research, 59(6), 679-685. https://doi.org/10.1016/j.jbusres.2006.01.002

Marković, M., Krstić, B., & Rađenović, T. (2020). Circular economy and sustainable development. Economics of Sustainable Development, 4(2), 1-9. https://doi.org/10.5937/ESD2001001M

Milkovich, G. T., Gerhart, B., & Hannon, J. (1991). The Effects of Research and Development Intensity on Managerial Compensation in Large Organizations. The Journal of High Technology Management Research, 2(1), 133-150. https://doi.org/10.1016/1047-8310(91)90018-J

Nandy, M. (2020). Is there any impact of R&D on financial performance? Evidence from Indian pharmaceutical companies. FIIB Business Review, 9(4), 319-334. https://doi.org/10.1177/2319714520981816

Nunes, P. M., & Serrasqueiro, Z. (2015). Profitability Determinants of Portuguese Knowledge-Intensive Business Services: Empirical Evidence Using Panel Data Models. Applied Economics Letters, 22(1), 51-56. https://doi.org/10.1080/13504851.2014.925041

Ortega-Argiles, R., & Brandsma, A. (2010). EU-US differences in the size of R&D intensive firms: Do they explain the overall R&D intensity gap. Science and Public Policy, 37(6) 429-441. https://doi.org/10.3152/030234210X508633

Ozkan, N. (2022). R&D spending and financial performance: Aa investigation in an emerging market. International Journal of Management Economics and Business, 18(1), 38-58. https://dx.doi.org/10.17130/ijmeb.964849

Petković, M., Krstić, B., & Rađenović, T. (2021). Intellectual capital investments as the driver of future company performance. Ekonomika, 67(2), 1-11. https://doi.org/10.5937/ekonomika2102001P

Phuong, N. T., & Manh T. M. (2017). The relationship between Research and development (R&D) spending and Firms financial performance: Case study of listed firms on Vietnam Stock Exchange. Imperial Journal of Interdisciplinary Research, 3(8), 7-13.

Pindado, J., De Queiroz, V., & Torre, C. (2010). How do firm characteristics influence the relationship between R&D and firm value? Financial Management, 39(2), 757-782. https://dx.doi.org/10.1111/j.1755-053X.2010.01091.x

Rao, J., Yu, Y., & Cao, Y. (2013). The Effect That R&D Has on Company Peformance: Comparative Analysis Based on Listed Companies of Technique Intensive Industry in China and Japan. International Journal of Education and Research, 1(4), 1-8.

Roberts, E. G., & Hauptman, O. (1987). The Financing Threshold Effect on Success and Failure of Biomedical and Pharmaceutical Startups. Management Science, 33(3), 381-394. https://doi.org/10.1287/mnsc.33.3.381

Roberts, P. W. (2001). Innovation and firm-level persistent profitability: A Schumpeterian framework. Managerial and Decision Economics, 22(4-5), 239-250. http://dx.doi.org/10.1002/mde.1018

Rocha, L. A., Cardenas, L. Q., Tortato, U., Santos Povoa, A. C., & Arujo Silva, N. G. (2019). Innovation and performance: The Contribution of Investments in R&D to firm profitability according to the technological frontier, Estudios de Economia Aplicada, 37(3), https://doi.org/10.25115/eea.v37i3.2794

Rzakhanov, Z. (2004). Innovation, Product Development and Market Value: Evidence from the Biotechnology Industry. Economic Innovation New Technology, 13(8), 747-760. https://doi.org/10.1080/1043859042000226211

Sardo, F., & Serrasqueiro, Z. (2017). Intellectual capital and Firms Financial Performance: A European Empirical Study. Business and Economic Research, 7(2), 1-18. https://doi.org/10.5296/ber.v7i2.11377

Savrul, M., & Incekara, A. (2015). The Effect of R&D intensity on innovation performance: A country level evaluation. Procedia-Social and Behavioral Sciences, 210, 388-396. https://doi.org/10.1016/j.sbspro.2015.11.386

Schoeffler, S. (1977). Good Productivity versus Bad Productivity. P/MS Newsletter, 77. Cambridge: Strategic Planning Institute

Shah, S., Andrew, W. S., & Akbar, S. (2008). Firm Size, Sector Market Valuation of R&D Expenditures. Applied Financial Economics Letters, 4(2), 87-91. https://doi.org/10.1080/17446540701537756

Shapiro, A. C., & Balbirer, S. D. (2000). Modern corporate finance: a multidisciplinary approach to value creation. New Jersey: Prentice Hall.

Sher, P. J., & Yang, P. Y. (2005). The effects of innovative capabilities and R&D clustering on firm performance: The evidence of Taiwan’s semiconductor industry. Technovation, 25(1), 33–43. https://doi.org/10.1016/S0166-4972(03)00068-3

Sinha, A., & Mondal, K. (2020). The Impact of Lagged R&D Expenses on Firm Performance: Empirical Evidence from the BSE Healthcare Index. International Journal of Theory & Practice, 11(02). https://doi.org/10.4038/cbj.v11i2.66

Sougiannis, T. (1994). The Accounting Based Valuation of Corporate R&D. The Accounting Review, 69(1), 44-68. https://www.jstor.org/stable/248260

Su, C. Y., Guo, Y. N., Chai, K. C., & Kong, W. W. (2021). R&D investments, debt capital, and ownership concentration: A three-way interaction and lag effects on firm performance in China’s pharmaceutical industry. Frontiers in Public Health, 1431. https://doi.org/10.3389/fpubh.2021.708832

Sun, X., Lee, S. H., & Phan, P. H. (2019). Family firm R&D investments in the 2007-2009 Great Recession. Journal of Family Business Strategy, 10(4), 100244. https://doi.org/10.1016/j.jfbs.2018.02.004

VanderPal, G. A. (2015). Impact of R&D expenses and corporate financial performance. Journal of Accounting and Finance, 15(7), 135-149.

Veselinović, N., & Veselinović, M. (2019). Technological innovation in the petroleum industry – the case of NIS J.S.C. Novi Sad. Economics of sustainable development, 3(1), 19-28. https://doi.org/10.5937/ESD1901019V

Vijayakumar, A., & Devi, S. S. (2011). Growth and profitability in Indian Automobile Firms-An analysis. Journal for Bloomers of Research, 3(2), 168-177.

Vithessonthi, C., & Racela, O. C. (2016). Short and long-run effects of internationalization and R&D intensity on firm performance. Journal of Multinational Financial Management, 34, 28-45. https://doi.org/10.1016/j.mulfin.2015.12.001

Wang, C. H, Lu, Y. H., Huang, C. W., & Lee, J. Y. (2013). R&D, productivity and market value: An empirical study from high-technology firms. Omega, 41(1), 143-155. https://doi.org/10.1016/j.omega.2011.12.011

Wang, M. C., & Chen, Z. (2022). The relationship among environmenatl performance, R&D expenditure and corporate perforamnce: using simultaneous equations model. Quality&Quantity: International Journal of Methodology, 56(4), 2675-2689. https://doi.org/10.1016/10.1007/s11135-021-01238-z

Wesley, L. H., & Wonglimpiyarat, J. (2020). R&D Investments and Strategic Use of Financial Models. International Journal of Innovation and Technology Management, 17(4), 1-28. https://doi.org/10.1142/S0219877020500303

Wöhrl, R., Hüsig, S., & Dowling, M. (2009). The interaction of R&D intensity and firm age: Empirical evidence from technology-based growth companies in the German “Neuer Markt.” The Journal of High Technology Management Research, 20(1), 19-30. https://doi.org/10.1016/j.hitech.2009.02.006

Xu, X., Chen, X., Zhu, Y., & Zhu, Y. (2022). The Effect of R&D Input on Operating Income of Chinese Wastewater Treatment Companies – With Patent Performance as a Mediating Variable. Water, 14(6), 836. https://doi.org/10.3390/w14060836

Yeh, M. L., Chu, H. P., Sher, P. J., & Chiu, Y. C. (2010). R&D intensity, firm performance and the identification of the threshold: fresh evidence from the panel threshold regression model. Applied Economics, 42(3), 389-401. https://doi.org/10.1080/00036840701604487

Zhao, R. (2002). Relative value relevance of R&D reporting: An international comparison. Journal of International Financial Management and Accounting, 13(2), 153-174. https://doi.org/10.1111/1467-646X.00082

Zhou, Y., & Zhang, J. (2022). The impact of Research and Development Investment on Stock Performance of Auto Industry Company in China. 4th International Conference on Research in BUSINESS, MANAGEMENT and FINANCE, 04-06 February, London, United Kingdom.




DOI: https://doi.org/10.22190/FUEO220707018J

Refbacks

  • There are currently no refbacks.


© University of Niš, Serbia
Creative Commons License CC BY-NC-ND
ISSN 0354-4699 (Print)
ISSN 2406-050X (Online)