Firm Strategy and Outcome Uncertainty in R&D Firms

Ozer Asdemir (), Zhiyan Cao, Ali Coskun and Arindam Tripathy
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Ozer Asdemir: Department of Accounting, Opus College of Business, University of St Thomas, Minneapolis, MN 55403, USA
Zhiyan Cao: Milgard School of Business, University of Washington, Tacoma, WA 98402, USA
Ali Coskun: Department of Management, Faculty of Economics and Administrative Sciences, Boğaziçi University, Bebek, Beşiktaş, Istanbul 34342, Turkey
Arindam Tripathy: Milgard School of Business, University of Washington, Tacoma, WA 98402, USA

JRFM, 2025, vol. 18, issue 6, 1-18

Abstract: We evaluate the impact of firm strategy on the variability of future performance for R&D firms and how firm strategy mediates the relation between R&D expenditures and firm outcome uncertainty of sales revenue, earnings, and operating cash flows. Following prior literature, we run exploratory factor analysis using resource allocations in the past towards intended strategy to measure the realized strategy pursued by firms. We find that, in R&D firms, differentiation strategy leads to lower variability of future sales, earnings, and operating cash flows. In contrast, cost leadership strategy leads to higher variability of future sales and operating cash flows, and lower variability of future earnings. Our study is the first, to our knowledge, to empirically document the impact of firm strategy of R&D firms on the variability of various future performance measures. Using mediation analysis, we further document that differentiation strategy negatively mediates the association between R&D expenditures and variability of sales revenue, earnings, and operating cash flows. While cost leadership strategy negatively mediates the association between R&D expenditures and variability of sales and variability cash flows, it positively mediates the association between R&D expenditures and variability of earnings.

Keywords: R&D expenditures; firm strategy; outcome uncertainty; mediation effect; differentiation; cost leadership (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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