The Effects Of Business Strategy On The Association Between R&D Expenditure And Future Firm Performance

Main Article Content

Anjung Chung
Manseek Choi

Keywords

R&D; Business Strategy; Earnings Persistence; Earnings Growth; Firm Value

Abstract

Research and Development (R&D) expenditure is one of the most essential factors for firm’s sustainable growth. Business strategy describes long-term business planning of a company, and chosen business strategy will have a significant impact on the financial status and performance of a firm. This study examines whether the business strategy affects the association between R&D and firm performance, defined as earnings persistence, earnings growth, and firm value. Like Jermias (2008), product differentiation and cost leadership strategies are classified by the cluster analysis using three ratios: R&D intensity, asset turnover, and profit margin ratio.


Our findings are as follows. (1) the effect of R&D expenditure on earnings persistence according to the business strategy appeared to be almost insignificant. (2) the effects of R&D expenditure on earnings growth up to three consecutive years are stronger in firms with product differentiation strategy than in firms with cost leadership strategy. These results indicate that R&D are more important and have greater impacts on future performance for product differentiation firms than for cost leadership firms. (3) R&D expenditure of product differentiation firms are more closely related to the firm value than R&D expenditure of cost leadership firms. The results of this study will be useful to practitioners when they are making R&D-related decisions based on their business planning. Also, this study provides useful empirical results to financial analysts and accounting academics when they are analyzing profitability and firm value.

Downloads

Download data is not yet available.
Abstract 45 | JABR-8560 Downloads 50