R&D expenditure and managerial ownership: evidence from firms of high-vs-low R&D intensity

Ahmed Hassanein, Jamal Al-Khasawneh and Hany Elzahar

Journal of Financial Reporting and Accounting, 2022, vol. 21, issue 3, 654-672

Abstract: Purpose - Corporate managers spend on research and development (R&D) for reasons of growth and survival. However, they may be less willing to invest in R&D because of its long-term horizon, high failure rate and uncertain outcomes. This study aims to explore the extent to which managerial ownership influences R&D expenditure decisions. Design/methodology/approach - Apart from the linear regression models, this study uses a semi-parametric quantile regression analysis for a sample of German non-financial firms throughout 2009–2018. Findings - This study finds a nonmonotonic sensitivity of R&D spending to the level of managerial ownership over various quantiles of R&D distribution. That is, managerial ownership increases the expenditure on R&D at low R&D intensity firms. However, it decreases the expenditure on R&D at high R&D intensity firms. These results suggest the presence of a maximum level of R&D expenditure, after which owner-managers would be unwilling to spend on R&D. Practical implications - The results confirm the importance of corporate ownership structure for firm R&D and innovation activities. It provides an implication for corporate policymakers to reform the corporate ownership structures to encourage corporate managers and owners to invest in R&D projects. Originality/value - This study offers two distinct contributions study. First, it provides the first German shred of evidence on the nonlinear relationship between managerial ownership and R&D expenditure decisions by distinguishing between high and low R&D intensity firms. Second, unlike prior research, it uses a semi-parametric quantile regression analysis. This method is more efficient than least-squares estimators and produces robust estimators to heteroscedasticity of the residuals.

Keywords: Germany; Nonlinearity; Managerial ownership; R&D expenditure; Semi-parametric quantile analysis (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfrapp:jfra-07-2021-0205

DOI: 10.1108/JFRA-07-2021-0205

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