The Impact of R&D Expenditures on Corporate Performance: Evidence from Slovenian and World R&D Companies

Abstract

Research and development (R&D) investment is widely recognised as one of the crucial elements of generating the competitive advantage of contemporary companies. At the same time, it is also considered to represent one of the key determinants of overall sustainable development. Global competition, which is becoming increasingly harsh and forces companies to provide value-added products, processes and services, constitutes a reason why R&D investment is indispensable in contemporary business operations as they facilitate keeping the companies’ position in the market in terms of their competitiveness. The main aim of this paper is therefore to examine the impact of R&D expenditures on corporate performance. Using a multiple regression analysis, two different panel datasets covering Slovenian and world R&D companies are analysed. This gives a unique opportunity to obtain comprehensive and interesting findings, representing the main originality and value of the paper. The empirical results reveal that R&D expenditures are not effective in the short-term period and bring certain benefits in the long-term period. The findings of this paper provide several important theoretical and practical implications.

R&D Investments, Debt Capital, and Ownership Concentration: A Three-Way Interaction and Lag Effects on Firm Performance in China's Pharmaceutical Industry

“…Consistent with prior research in this area and the effort to exclude alternative explanations, this study included the following control variables: Firm size, fixed asset turnover, market competition, firm age, state ownership, and sales growth. Given that larger firms may have more favorable access to capital and more resources to generate high performance than smaller firms (115,116), we controlled for the firm size, as measured by the natural logarithm of the total assets. We operationalized firm age, which may account for a firm's experience (117,118), as the number of years since a firm was founded.…”

The Impact of the R&D Investments towards Short-term Corporate Valuation -- Evidence from Chinese Listed Healthcare Companies

“…Through analyzing the link between R&D investments and fair value in the advanced nations, including America, Japan, and Germany, Bae (2003) believed there is a positive correlation, while the degree fluctuated among different countries [6]. However, Ravšelj and Aristovnik (2020) concluded that no significant relationship exists between short-term corporate valuation and R&D investments, while there is a positive link among its financial performance counterparts [11]. Differently, according to Biswas (2021), R&D investments are vital for the corporations to innovate and maintain competitiveness.…”

“…To exclude other explanations, there are five control variables in the research. Firstly, larger companies have more channels and resources, so they can enjoy economies of scale and are easier to generate capital as well as enhance industry barriers; hence, firm size is controlled applying log coefficients of total assets [11,18]. Secondly, a higher fixed asset turnover will be in favor of productivity and performance; thus, this research controls fixed assets turnover [18].…”

“…Thirdly, market concentration will affect the company strategies and resource distribution; therefore, this research controls market competition using Herfindahl-Hirschman Index as an indicator [18,20]. Fourthly, more sales volume will enhance the income, profitability, and above-normal rates of return, leading to higher share price and corporate valuation; therefore, sales growth rate also is a control variable [6,11,18,30]. Lastly, there are some adverse effects between firm performance and financial leverage ratio because companies have to pay more debt and invest less; consequently, financial leverage is controlled by utilizing the asset-liability ratio [11].…”

Relative efficiency of R&D in European countries

“…In order to achieve competitive advantage, efficiency and productivity of R&D operation is acquired (Werner and Souder, 1997). Although some empirical studies argue that expenditures on R&D have an immediate positive impact on current operating performance (Apergis and Sorros, 2014), while other studies argue that benefits can be visible in the long run (Gumus and Celikay, 2015;Ravšelj and Aristovnik, 2020), general opinion is that expenditures on R&D positively affect modern businesses and economic growth. One of the most important components of economic growth is technological development and therefore efficiency of R&D operations is crucial for companies, institutions and countries to be competitive A.…”