Title: The effect of R&D expenses on financial performance: high vs. low R&D intensity industries

Authors: Emanuele Teti; Maurizio Dallocchio; Giovanna Mariani; Aleksandra Pogodaeva

Addresses: Università di Pisa, Via Cosimo Ridolfi, 10, 56124 Pisa, Italy ' Bocconi University, Via Sarfatti, 10, 20136 Milan, Italy ' Università di Pisa, Via Cosimo Ridolfi, 10, 56124 Pisa, Italy ' Bocconi University, Via Sarfatti, 25, 20136 Milan, Italy

Abstract: This paper examines the effect of R&D expenditure on the financial performance of companies, by comparing a low R&D intensity industry (consumer goods) to a high R&D intensity industry (pharmaceutical). We find that in both industries innovation activities and R&D expenses bring about better financial performance. Specifically, increasing R&D intensity boosts revenues. However, this occurs, but with a time lag. Low R&D intensive companies gain benefits from R&D investments more rapidly than high R&D intensive companies. In the two industries, time lag varies due to the specificities and peculiarities of R&D procedures, product production, distribution, and other processes. Finally, the paper shows that the effect of R&D expenses varies across the companies in the industries analysed. R&D expenses in pharmaceutical companies induce higher revenue growth, compared to consumer goods firms.

Keywords: innovation; R&D; corporate finance; financial performance.

DOI: 10.1504/IJBIR.2023.134170

International Journal of Business Innovation and Research, 2023 Vol.31 No.4, pp.542 - 562

Received: 09 Jun 2020
Accepted: 13 Jan 2021
Published online: 12 Oct 2023 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article