A firm’s R&D investment plays a pivotal role in the firm’s innovation activities, representing future growth opportunities. This study broadens the analysis of R&D investments to the direct effects (impact) of firm performances for three high-tech industries among Asia Pacific, Europe and North America. Regarding the firm performance measures, this study simultaneously utilizes market- and accounting-based measures of the firm performance, Tobin’s q and ROA. The results show that R&D expenditures as a percentage of sales are, on average, greater for North America firms (13%) than for Europe (7%) and Asia Pacific firms (3%). Regression results show that after controlling for firm-related factors, R&D investment has a persistently positive effect on the Tobin’s q among Asia Pacific, Europe and North America, with a more pronounced effect for North America. These results indicate that while long-term investments of firms such as R&D are valued highly in capital markets regardless of their regions, they make relatively more contributions to the Tobin’s q of North America firms. As expected, for ROA regressions, R&D intensity is negatively correlated with ROA. The benefits of R&D are long term in nature and could adversely affect short-term profitability.
Because industries differ widely in the effectiveness of R&D, studies that include data from various industries are flawed by too much aggregation. To further investigate these effects of R&D on firm performances based on different high-tech industries, this study further show that all the coefficients of the R&D intensity are insignificant association with Tobin’s q in the three high-tech industries in Asia Pacific. Except in Electrical & Electronics industries, it is significantly positive in the other two industries in Europe, whereas R&D investment has a persistently positive effect on the
Tobin’s q for the three high-tech industries in North America. These results suggest for the stock market investors in North America evaluate R&D expenditure as the key consideration in the market valuation of three high-tech industries.
The results further show that there exist notable differences in firm size among the three regions. For both Europe and North America, firm sizes are significantly negative related to Tobin’s q, while it is significantly positive to Tobin’s q only for Asia Pacific.
A firm’s financial leverage is, however, significantly negatively related to the firm performances among the three regions, in particular, SIC 36 industries. In most cases, growth in sales and capital intensity are significant and positive to firm performances in the three high-tech industries among the Asia Pacific, Europe and North America.
Finally, this study can be extended with samples of other industries (e.g., non high-tech based industries) in order to generalize the finding of this study. The study using other industry samples will help us in finding the existence of a general relationship between R&D and firm performances. The existence of the relationship between firm performance and R&D expenditures will also help us in justifying R&D related expenditures. The extension of the study could be conducted with different industry samples and longer time periods and other performance measures. The future research would clarify not only the generalization of the findings, but also provide additional insight into the strategic effects of R&D on a firm’s profit and performance.
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