R&D Investments and Firm Performance: An Empirical Investigation of the High Technology Sector (Software and Hardware) in the E.U.

20 Pages Posted: 21 Nov 2012 Last revised: 22 Oct 2014

See all articles by Emmanouil Pantagakis

Emmanouil Pantagakis

Technological Educational Institute of Crete; University of Crete - Department of Economics

Dimitrios Terzakis

Technological Educational Institute (TEI) of Crete

Stavros Arvanitis

Technological Educational Institute (TEI) of Crete

Date Written: November 21, 2012

Abstract

Purpose – The purpose of this paper is to examine the relationship among research and development expenses (R&D), market value and firm performance. Additionally, what is also questioned is, whether the relationship between R&D and market value of the firm is linear.

Design/methodology/approach – Data analysis was realized through panel data analysis and the feasible generalized square method (FGLS), using data from the financial statements of 39 European firms, which activate in the Software and Hardware Computer sector, for the period 2006-2010. Following prior studies, our dependent variables are the Market Value and Annual Return on Assets (ROA).

Findings – Results indicate a positive correlation between R&D investment and firm performance in the marketplace. In contrast, the above does not apply in the case of R&D and firm performance, since due to time lag, the relationship with the ROA results in being negative. Furthermore, a non-linear relationship between R&D and market value of the firm is verified.

Research limitations/implications – There are limitations because many firms either they do not accurately calculate or they do not record their R&D investments in their financial statements.

Originality/value – The verification of the existence of a non-linear relationship between R&D investments and market value of firms, adds an innovative character in this research.

Keywords: research and development (R&D), firm performance, market value, nonlinear, time-lag

JEL Classification: M40, O30, O32

Suggested Citation

Pantagakis, Emmanouil and Terzakis, Dimitrios and Arvanitis, Stavros, R&D Investments and Firm Performance: An Empirical Investigation of the High Technology Sector (Software and Hardware) in the E.U. (November 21, 2012). Available at SSRN: https://ssrn.com/abstract=2178919 or http://dx.doi.org/10.2139/ssrn.2178919

Emmanouil Pantagakis

Technological Educational Institute of Crete ( email )

Estavromenos
Iraklio
Heraklion, Crete 71004
Greece

University of Crete - Department of Economics ( email )

Rethymno, GR-74100
Greece

Dimitrios Terzakis (Contact Author)

Technological Educational Institute (TEI) of Crete ( email )

Estavromenos
P.O.B. 1939
Heraklion, Crete GR-71500
Greece

Stavros Arvanitis

Technological Educational Institute (TEI) of Crete ( email )

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