Firm Growth and R&D in the Korean Pharmaceutical Industry

Abstract

We explore the impact of research and development (R&D) on sales growth rate with firm-specific factors under the Korean pharmaceutical industry structure using listed Korea pharmaceutical company data from 2007 to 2018 with the quantile regression technique. We find that R&D intensity has a positive effect on firm growth rate while R&D scale a negative effect on the firm growth rate at the upper quantile, whereas the result is opposite at the lower quantile. Firm size has a mixed relationship with sales growth at the upper quantile, thus Gibrat’s law is rejected in the Korean pharmaceutical industry. Firm age has a negative relationship with the sales growth rate at the upper quantile, which shows the consistent result with previous research that young firms grow faster. Patent persistence has a negative relationship with sales growth at the upper quantile, while a positive effect at the lower quantile. We show that young firms and firms with high R&D intensity contribute to the high growth rate, while the relationship is not clear at the lower quantile. Therefore, policy implication in this research is that the government should pay attention to encouraging and supporting R&D investment activities and small firms as well as consider ways to enhance patent rights.

Determinants of biopharmaceutical R&D expenditures in China: the impact of spatiotemporal context

“…The R&D investments of biopharmaceutical companies are determined according to their spatiotemporal context and individual factors. At the company level, the size of an enterprise often has a significant influence on its R&D investment (Chung et al, 2019;DiMasi, 2014;Philippe et al, 2013). Other factors at the company level include company sales (Prentis et al, 1988), company earnings (David et al, 2009), corporate governance structure (Jing & Gou, 2010), tax burden (William & McCutchen, 1993), and labor costs (Omta et al, 1994).…”

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The relationship among corporate social responsibility, sustainability and organizational performance in pharmaceutical sector: a literature review

“…In addition to both China and Bangladesh, a study conducted in Korea by Chung et al (2019) on firm growth and research initiatives in the Korean pharmaceutical industry showed that mix relationship exists between sales and research depending on firm size. It should be noted that there are no studies to date that show CSR activities have a negative relationship with organizational performance in the pharmaceutical sector.…”

Research and development efforts in Indian pharmaceutical industry: How much does it matter?

“…Empirical studies which extended the regression model of Gibrat's law (1931) by considering additional determinants for firm growth along with R&D expenditure have included firms from various industries demonstrating considerable heterogeneity in R&D intensity, innovation persistence and size. Having found R&D as a critical driver of firm growth (Chung et al, 2019), many researchers studying firm growth have included R&D in the list of independent variables. Coad et al (2016) and Goedhuys and Sleuwaegen (2015) found that in younger firms, R&D had a significant effect on performance in the upper growth quantile and a negative effect at lower growth quantile.…”