Exploring the Relationship between R&D Investment and Business Performance—An Empirical Analysis of Chinese ICT SMEs

Mengning He () and Raquel Pérez Estébanez
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Mengning He: Faculty of Economics and Business Administration, Complutense University of Madrid, 28223 Madrid, Spain
Raquel Pérez Estébanez: Faculty of Economics and Business Administration, Complutense University of Madrid, 28223 Madrid, Spain

Sustainability, 2023, vol. 15, issue 6, 1-17

Abstract: Service and product innovation have been emphasized as being essential to the success of ICT firms in numerous studies. Being ongoing processes, R&D activities make it challenging to forecast the benefits to a business. Does the company obtain immediate returns on its research and development expenditures? How long will their effectiveness remain? During the development of a strategy, business managers must take all these factors into account. A major objective of this paper is to determine the relationship between a company’s R&D investment and its business performance. We collected data from 1262 small- and medium-sized enterprises in the ICT service industry in China between 2011 and 2020. The R&D investment was selected as the independent variable, while its financial performance (ROA, ROE, liquidity ratio, debt asset ratio, and interest cover ratio) and market value (Tobins’ Q) were selected as the dependent variables. Multiple linear regressions were used to determine whether there was a correlation between these variables. Firstly, R&D investment improve current profitability and there is a one-period lag in these benefits. Second, R&D is negatively correlated with short-term debt-paying ability, but positively correlated with a long-term view, and these effects will last for one period. Lastly, R&D investment has a negative impact on the current market value, but the R&D investment within the two lagged periods still has a positive impact. This study addresses a significant gap in empirical research. Recommendations for companies to consider when making R&D decisions are also included in the paper.

Keywords: research and development investment; business performance; business financial performance; business market value; lagged effect (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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