This article tests whether there is an optimal level of research and development (R&D) intensity at which point a firm is able to maximize its performance. An advanced panel threshold regression model is employed to investigate the panel threshold effect of R&D intensity on firm performance among publicly traded Taiwan information technology and electronic firms. The results confirm that a single-threshold effect does exist and show an inverted-U correlation between R&D intensity and firm performance. This article demonstrates that it is possible to identify the definitive level beyond which a further increase in R&D expenditure does not yield proportional rewards. Some important policy implications emerge from the findings

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In this study, the newly-developed Panel SURADF tests advanced by Breuer et al. (2001) are used to investigate whether the growth rate of electronics firms is independent of their size, as postulated by Gibrat's (1931) Law of Proportionate Effects. Time-series data for the total assets of 48 electronic firms in Taiwan during the 1995-2004 period are used. Whereas other panel-based unit root tests are joint tests of a unit root for all members of a panel and are incapable of determining the mix of I(0) and I(1) series in a panel setting, the Panel SURADF tests investigate a separate unit root null hypothesis for each individual panel member and are, therefore, able to identify how many and which series in the panel are stationary processes. The empirical results from several panel-based unit root tests indicate that the total assets of all firms studied here are nonstationary, implying that Gibrat's Law holds for all 48 firms; however, Breuer et al.'s (2001) Panel SURADF tests unequivocally indicate that Gibrat's Law is only valid for 27 of those firms

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