The Relationship Between R&D Spending Instability and a Firm’s
Performance

D 2017

The Relationship Between R&D Spending Instability and a Firm’s Performance

JIRÁSEK, Michal

Basic information

Original name

The Relationship Between R&D Spending Instability and a Firm’s Performance

Authors

JIRÁSEK, Michal (203 Czech Republic, guarantor, belonging to the institution)

Edition

Reading, Proceedings of the 5th International Conference on Management, Leadership and Governance, p. 495-502, 8 pp. 2017

Publisher

Academic Conferences and Publishing International Limited

Other information

Language

English

Type of outcome

Proceedings paper

Field of Study

50600 5.6 Political science

Country of publisher

United Kingdom of Great Britain and Northern Ireland

Confidentiality degree

is not subject to a state or trade secret

Publication form

electronic version available online

RIV identification code

RIV/00216224:14560/17:00096364

Organization unit

Faculty of Economics and Administration

ISBN

978-1-911218-27-2

ISSN

UT WoS

000404892000061

Keywords in English

R&D investment fluctuations; firm performance; behavioral theory of the firm; German industrials

Changed: 17/5/2018 14:42, Mgr. Kateřina Oleksíková, Ph.D.

Abstract

In the original language

The link between investment in innovation and subsequent change in the competitive advantage or performance of a firm is one of the most frequently studied topics with a huge importance for strategic management. The relationship has been mostly confirmed under additional influencing factors, with the form of innovation investments arguably being one of them. The research following the behavioral theory of the firm assumes that a firm adjusts its R&D spending in accordance to performance feedback. This feedback stems from the comparison of the current firm performance with its historical aspiration, historical performance and performance of firms constituting its social benchmark. When this aspiration is not attained, a firm is motivated to change which results in a change in R&D spending. A firm that is subject to this performance feedback continuously adjust its investment level—not because of changes in the research potential or deployment of a new strategy, but because of performance fluctuations, which can be caused by countless reasons, some of them outside a firm’s control. In this research, it is argued that an increased fluctuation of a firm’s R&D expense is related to a reduced financial performance. This hypothesis is tested on a sample of large German industrial firms listed on stock exchange markets followed between the years 2001 and 2015. Using fixed and random effects panel data models, the R&D instability measured by three-year and five-year standard deviations is related to financial performance levels measured by return on assets, return on equity and profit margin. Results support the proposed relationship between R&D expense instability and the subsequent financial performance of a firm. Although a causal link cannot be clearly established, the results indicate that firms with a lower financial performance have higher R&D investment fluctuations.

Links

MUNI/A/0878/2016, interní kód MU

Name: Cyklus strategické chování-výkonnost podniku a faktory jej ovlivňující

Investor: Masaryk University, Category A

Cite

JIRÁSEK, Michal. The Relationship Between R&D Spending Instability and a Firm’s Performance. Online. In Zanele Ndaba a Thabang Mokoteli. Proceedings of the 5th International Conference on Management, Leadership and Governance. Reading: Academic Conferences and Publishing International Limited, 2017, p. 495-502. ISBN 978-1-911218-27-2.

@inproceedings{1376699,
   author = {Jirásek, Michal},
   address = {Reading},
   booktitle = {Proceedings of the 5th International Conference on Management, Leadership and Governance},
   editor = {Zanele Ndaba a Thabang Mokoteli},
   keywords = {R&D investment fluctuations; firm performance; behavioral theory of the firm; German industrials},
   howpublished = {elektronická verze "online"},
   language = {eng},
   location = {Reading},
   isbn = {978-1-911218-27-2},
   pages = {495-502},
   publisher = {Academic Conferences and Publishing International Limited},
   title = {The Relationship Between R&D Spending Instability and a Firm’s Performance},
   year = {2017}
}

TY  - CONF
ID  - 1376699
AU  - Jirásek, Michal
PY  - 2017
TI  - The Relationship Between R&D Spending Instability and a Firm’s Performance
PB  - Academic Conferences and Publishing International Limited
CY  - Reading
SN  - 9781911218272
KW  - R&D investment fluctuations
KW  - firm performance
KW  - behavioral theory of the firm
KW  - German industrials
N2  - The link between investment in innovation and subsequent change in the competitive advantage or performance of a firm is one of the most frequently studied topics with a huge importance for strategic management. The relationship has been mostly confirmed under additional influencing factors, with the form of innovation investments arguably being one of them. The research following the behavioral theory of the firm assumes that a firm adjusts its R&D spending in accordance to performance feedback. This feedback stems from the comparison of the current firm performance with its historical aspiration, historical performance and performance of firms constituting its social benchmark. When this aspiration is not attained, a firm is motivated to change which results in a change in R&D spending. A firm that is subject to this performance feedback continuously adjust its investment level—not because of changes in the research potential or deployment of a new strategy, but because of performance fluctuations, which can be caused by countless reasons, some of them outside a firm’s control. In this research, it is argued that an increased fluctuation of a firm’s R&D expense is related to a reduced financial performance. This hypothesis is tested on a sample of large German industrial firms listed on stock exchange markets followed between the years 2001 and 2015. Using fixed and random effects panel data models, the R&D instability measured by three-year and five-year standard deviations is related to financial performance levels measured by return on assets, return on equity and profit margin. Results support the proposed relationship between R&D expense instability and the subsequent financial performance of a firm. Although a causal link cannot be clearly established, the results indicate that firms with a lower financial performance have higher R&D investment fluctuations.
ER  -

JIRÁSEK, Michal. The Relationship Between R\&{}D Spending Instability and a Firm’s Performance. Online. In Zanele Ndaba a Thabang Mokoteli. \textit{Proceedings of the 5th International Conference on Management, Leadership and Governance}. Reading: Academic Conferences and Publishing International Limited, 2017, p.~495-502. ISBN~978-1-911218-27-2.

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