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Impact of R&D on profitability in the pharma sector: an empirical study from India

Impact of R&D on profitability in the pharma sector: an empirical study from India PurposeThe purpose of the current paper is to examine the nature of profit persistence and to estimate the dynamic relationship between research and development (R&D) intensity and firm profitability in the Indian pharmaceutical industry.Design/methodology/approachA dynamic panel data model with generalized methods of moments (GMMs) technique has been deployed to estimate the relationship between R&D intensity and performance. Arellano and Bond (1991) estimation methodology has been used to generate the estimates. A sample of 55 publicly listed firms operating in the Indian pharmaceutical industry for the period 2005-2014 has been considered.FindingsThe study finds moderate to heavy profit persistence in the Indian pharmaceutical industry. The study also finds that there exists a positive relationship between R&D intensity and performance for the Indian pharmaceutical Industry. The results hold even after considering two separate measures of profitability – return on assets and return on sales. The results also hint at a possible non-linear relationship between R&D intensity and profitability.Research limitations/implicationsThe results highlight positive profit persistence among pharmaceutical firms. The results also highlight the need for a sustained investment in R&D, as its benefits are driven in the long run. Thus, managers should devise proper policies R&D investments. Also, prospective entrants should properly study the existing entry barriers before deciding upon the mode and timing of entry.Originality/valueThe degree of profit persistence and the dynamic nature of relationship between R&D intensity and firm performance in the Indian pharmaceutical sector has not been studied. Thus, this paper fills this gap and also highlights the impact of certain firm- and industry-specific variables on profitability. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Asia Business Studies Emerald Publishing

Impact of R&D on profitability in the pharma sector: an empirical study from India

Journal of Asia Business Studies , Volume 10 (2): 17 – May 3, 2016

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1558-7894
DOI
10.1108/JABS-03-2015-0031
Publisher site
See Article on Publisher Site

Abstract

PurposeThe purpose of the current paper is to examine the nature of profit persistence and to estimate the dynamic relationship between research and development (R&D) intensity and firm profitability in the Indian pharmaceutical industry.Design/methodology/approachA dynamic panel data model with generalized methods of moments (GMMs) technique has been deployed to estimate the relationship between R&D intensity and performance. Arellano and Bond (1991) estimation methodology has been used to generate the estimates. A sample of 55 publicly listed firms operating in the Indian pharmaceutical industry for the period 2005-2014 has been considered.FindingsThe study finds moderate to heavy profit persistence in the Indian pharmaceutical industry. The study also finds that there exists a positive relationship between R&D intensity and performance for the Indian pharmaceutical Industry. The results hold even after considering two separate measures of profitability – return on assets and return on sales. The results also hint at a possible non-linear relationship between R&D intensity and profitability.Research limitations/implicationsThe results highlight positive profit persistence among pharmaceutical firms. The results also highlight the need for a sustained investment in R&D, as its benefits are driven in the long run. Thus, managers should devise proper policies R&D investments. Also, prospective entrants should properly study the existing entry barriers before deciding upon the mode and timing of entry.Originality/valueThe degree of profit persistence and the dynamic nature of relationship between R&D intensity and firm performance in the Indian pharmaceutical sector has not been studied. Thus, this paper fills this gap and also highlights the impact of certain firm- and industry-specific variables on profitability.

Journal

Journal of Asia Business StudiesEmerald Publishing

Published: May 3, 2016

References