Uncertainty and R&D investment: Does product market competition matter?

Muhammad Arif Khan, Xuezhi Qin, Khalil Jebran and Irfan Ullah

Research in International Business and Finance, 2020, vol. 52, issue C

Abstract: In recent years, the question of how uncertainty influences corporate decisions has received greater interest among academics, researchers, and corporations. This study is an attempt to investigate how uncertainties (firm-specific uncertainty (fsu), market-based uncertainty (mu), and economic policy uncertainty (epu)) influence research and development (R&D) investment and to further examine whether this relation is moderated by product market competition across firms of different sizes. Using a sample of Chinese listed firms covering 2000–2017, this study applies a two-step system GMM model to perform estimations and control for endogeneity issues. The findings show that uncertainties (fsu, mu, and epu) negatively influence R&D investment and that this negative relationship is more prominent for firms operating in competitive industries. In concentrated industries, however, the negative impact of uncertainty is mitigated for large firms, which have more internal resources and better access to external financing. This study contributes to real options theory by illustrating how different forms of uncertainty embedded in a firm’s internal and external environment reduce R&D investment, and by indicating how this relationship is moderated by product market competition.

Keywords: R&D investment; Innovation; Uncertainty; Product market competition; China (search for similar items in EconPapers)
JEL-codes: D81 G18 O32 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:52:y:2020:i:c:s0275531919308773

DOI: 10.1016/j.ribaf.2019.101167

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