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/lp/inderscience-publishers/the-association-between-research-and-development-expenditure-and-firm-yVcRFkL7D8
- Publisher
- Inderscience Publishers
- Copyright
- Copyright © Inderscience Enterprises Ltd. All rights reserved
- ISSN
- 1740-8008
- eISSN
- 1740-8016
- DOI
- 10.1504/IJAAPE.2011.042771
- Publisher site
- See Article on Publisher Site
Abstract
Although prior studies provide evidence that investment in research and development (R&D) expenditure enhances a firm’s performance, very little evidence is available on the impact of a firm’s life cycle stages on the association between R&D expenditures and firm performance. We classify firms into three-life cycle stages, namely, growth, mature and stagnant, and choose four-life cycle classification variables which are dividends, sales growth, capital expenditure and firm age. Using 769-firm-year observations over a period of 11-years in Australia, we find that the abnormal returns to unexpected expensed R&D amounts are significantly negative. Further, our results suggest that market reaction to expensed R&D is more negatively pronounced during the stagnant phase of a firm’s life cycle, suggesting that the market perceives that firms have limited prospects to derive benefits arising out of expensed R&D expenditures. The results suggest that the relationship between performance and investment in R&D is not linear but is moderated by a firm’s life cycle which should be taken into account when making policy that is based on stock-based performance.
Journal
International Journal of Accounting, Auditing and Performance Evaluation – Inderscience Publishers
Published: Jan 1, 2011