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Differentiation Strategy, R&D Intensity, and Sustainability of Accounting Earnings: With a Focus on Biotech Firms

Namryoung Lee () and Jaehong Lee ()
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Namryoung Lee: School of Business, Korea Aerospace University, Goyang 10540, Korea
Jaehong Lee: College of Business, Sangmyung University, Seoul 03016, Korea

Sustainability, 2019, vol. 11, issue 7, 1-16

Abstract: In this paper, we examine the association between management strategy and a firm’s sustainability of accounting earnings over almost 20,000 firm-year observations in South Korea between 2000 and 2017. Using the differentiation strategy developed by Porter for measuring management strategy, we find that firms that implement the differentiation strategy make more-sustainable accounting earnings, as measured by the persistence of return on assets. In addition, regardless of the magnitude of R&D investments, proper implementation of the differentiation strategy is positively associated with the sustainability of accounting outcomes. However, except when sales increase, a reduction in R&D intensity has a negative impact on the persistence of accounting income for biotech firms. This is because biotech firms are not be able to continue to strengthen core competencies and thus cannot ultimately implement a differentiating strategy effectively.

Keywords: differentiation strategy; R&D intensity; biotech firms; sustainability of accounting earnings (search for similar items in EconPapers)
JEL-codes: Q Q0 Q2 Q3 Q5 Q56 O13 (search for similar items in EconPapers)
Date: 2019
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