The Impact of Research and Development on the Financial Sustainability of Information Technology (IT) Companies Listed on the S&amp;P 500 Index

Dave, Priyanka; Wadhwa, Varun; Aggarwal, Shrey; Seetharaman, A.

doi:10.5539/jsd.v6n11p122

Cited by 14 publications

(22 citation statements)

References 37 publications

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“…This investment in R&D has led to firms reaping both tangible and intangible benefits, which have trickled down to all the stakeholders. The R&D expenditure, research shows, has a positive impact on sales revenue which leads to financial sustainability as long as technological performance is high (Dave et al, 2013). In addition, firms, depending on the tax laws in their jurisdiction, get motivated in capital expenditures to get a relief on their tax liabilities (Beatty et al, 1997).…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

Corporate CAPEX and market capitalization of firms on Malawi stock exchange: an empirical study

Majanga

2018

JFRA

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Purpose Market capitalization of firms reflects the current value of a firm and provides a reasonable basis on mergers and acquisition bargains. Determinants of a firm’s increasing or decreasing market capitalization are multi-faceted, hence the study. The paper is about a historical study of the responsiveness of common share prices of some listed industrial companies to the firms’ investments in capital expenditure. This study aims to discuss the impact of capital expenditure on a firm’s market capitalization, with a focus on companies listed on the Malawi stock exchange (MSE). Design/methodology/approach The study reviews data collected from published annual reports for the years from 2007 to 2015. The variations in capital expenditure (CAPEX) which are termed “increase” or “decrease” were studied to establish their association with variations in stock prices before the increase or decrease, and after the increase or decrease. As stock price changes are caused by other determinants, the variables of return on capital employed (ROCE), net profit margin (NPM), asset turnover (ATO) and earnings retention ratio (ERT) were analyzed, and a respective correlation test was done against CAPEX movement over the years through panel data analysis and regression analysis to establish the correlation between the variables using XLSTAT. Findings At 95 per cent confidence level, CAPEX correlates with ROCE and NPM at 0.373 and 0.249 coefficients, respectively, and negatively with ERT at 6.45e-2. With tests favoring a positive relationship between elements of profitability and stock price, the study finds that there is a positive relationship between a firm’s CAPEXs and its future stock prices. Research limitations/implications The firm’s commitment to CAPEX has a positive impact on its stock price on the stock exchange. These findings, however, need to be interpreted with caution as the data reviewed excluded that from financial institutions, the inclusion of which may affect the outcome, and that the data are derived from a small and young stock market which may be lacking in its efficiency compared to the old and big ones the world over. Originality/value The study was undertaken based on the study of listed companies on the Malawi Stock Exchange, and the results may or may not reflect the reality on the ground in other stock exchanges.

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Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

Corporate CAPEX and market capitalization of firms on Malawi stock exchange: an empirical study

Majanga

2018

JFRA

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“…The company's active R&D activity has a positive effect on the company's performance. As a result of studying the effect of R&D on financial (economic) sustainability through marketing performance, operating profit, and technical performance, Dave et al [18] explained that there is a strong indirect positive(+) relationship between R&D and financial (economic) sustainability through measured operating profit.…”

Section: Randd Activity and Business Performancementioning

confidence: 99%

Study Regarding Research and Development Activity in Korea: Centered on RD Performance Rate

2020

APJCRI

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Today's global world economy is based on the knowledge-based society where knowledge and information determine the competitiveness of the country and we have entered the age of limitless competition where the company cannot survive if it cannot secure the market advantage. To respond to such changes in the economic environment, all companies are seeking to lead innovation to create new value one step ahead of its competing companies and are immersing itself in research and development R&D activity to achieve this. Because of this, companies are continuously increasing investment scale into R&D activity. What is the reason for the company to increase investment into R&D activity? From the company's perspective, R&D investment becomes the driver for stable growth by securing future technology and market competitiveness and such strategic investment can be seen as the core source to create future company value and intangible asset value. In other words, the company is increasing the expenditure related to future economic benefits such as R&D to gain a strategic advantage in the intensely competitive environment. A relatively early study which performed empirical testing on the effect of expenditure of R&D expenses on the company's value was the study by Hirschey [1]. Study results observed that R&D expenses, by expensing entire amount of the R&D expenses, had a positive(+) effect on the company's market value and, afterward, there were many studies showing empirical testing results on the positive(+) effect on market value, company value, etc. According to such study results, it was confirmed as a definite fact that the expenditure of R&D expenses, regardless of accounting whether to treat R&D investment as asset or expense, is a major factor in positively(+) affecting the company's business performance, future economic benefit, or the company's value. Starting from such problem awareness, this study empirically checked R&D activity rate of Korea's manufacturing companies regarding R&D activity that has high chance of contributing to the value creation in the future rather than the present and sought to propose R&D activity direction. This study result is expected to be utilized by the company manager in developing plan for R&D activity type suitable for development stage of the individual company.

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“…Result show that impact of R&D on exports depends on the firm characteristics. Dave et al (2013) investigates the relationship between R&D and firm specific characteristics like firm size, interest rate on the information technology firms listed in S&P Index. Findings show the positive impact of R&D on net sales.…”

Section: Literature Reviewmentioning

confidence: 99%

THE IMPACT of INNOVATION on FIRM PERFORMANCE: EVIDENCE from BORSA ISTANBUL

Çimen¹

2019

TurkishStudies

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Currently, the importance of research and development (R&D) expenditures is increasing in terms of both countries and firms. While countries want to be highly developed countries and increase their per capita income by rising their R&D expenditures; firms try to meet the main aim of a company from financial perspective, which is maximisation of the firm value. In this paper, the relationship between financial performances and R&D expenditures of technology firms that take place in the Public Disclosure Platform and Borsa İstanbul between 2013 and 2018 are analysed. As a result of the increasing competition, especially in the field of technology, companies want to increase their market shares, profits and firm values. Firms that can not keep up with the changes in technology face the probability of bankrupcy. Therefore, in order to understand the increasing importance of technology and the role of R & D expenditures in this sector better, firms in the technology sector are analyzed. Although many different variables have been used in the literature as indicators of innovation; the most widely used is R & D expenditures. Hence, in this study, R & D expenditures are used as a proxy of innovation, whereas net sales and profit items are included in the analysis as proxies of firm performance. The relationship between the variables is tested through panel causality test. The panel causality test is used for both of the relationships between R&D expenditures and net sales in addition to the relationship between R&D and profit. The findings of the study show that firms with higher R&D expenditures have greater net sales and profits. Besides, R&D has higher positive impact on sales than it has on profit.

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The Impact of Research and Development on the Financial Sustainability of Information Technology (IT) Companies Listed on the S&P 500 Index

Cited by 14 publications

References 37 publications

Corporate CAPEX and market capitalization of firms on Malawi stock exchange: an empirical study

Corporate CAPEX and market capitalization of firms on Malawi stock exchange: an empirical study

Study Regarding Research and Development Activity in Korea: Centered on RD Performance Rate

THE IMPACT of INNOVATION on FIRM PERFORMANCE: EVIDENCE from BORSA ISTANBUL

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