Antecedents and Consequence of R&D Budget in Taiwan

Abstract

This study examines the relationship between R&D budget level and its antecedents, as well as the relationship between R&D budget level and its financial consequence. Utilizing pooled cross-sectional research designs and the Taiwanese firm data for the year 2001-2002, this study finds that historical performance below aspiration, prior year R&D intensity, the stockholdings of directors, duality of CEO, and marginal tax rate are all significant factors in motivating firms to enhance their R&D budget numbers. Firms who are younger, have better historical performance, and face intensified rival R&D would be more likely to reduce their R&D budget levels. Furthermore, R&D budget amount is significantly positively related to future accounting-based performance. While dividing actual R&D budgets into two components - context-driven R&D budgets and firm-specific idiosyncratic component of the R&D budgets, this study finds that both components are positively associated with future accounting-based performance. Firms with greater than predicted R&D budgets outperform those with lower than predicted R&D budgets.

Keywords: R&D budget, Firm Performance, Contextual Factors

JEL Classification: G31, O32