The Effects of Research and Development Expenditure on Firm Performance: an Examination of Pharmaceuticals Industry in Bangladesh

Jannatul Ferdaous and Mohammad Mizanur Rahman

Business & Entrepreneurship Journal, 2017, vol. 6, issue 2, 1

Abstract: The purpose of this study is to provide a comprehensive evaluation of firm performance against R&D expenditure. The issue of firm performance is measured within the purview of financial performance, market position performance, and market based performance. The data have been collected for the period of 2001-2015 from listed pharmaceuticals firms in stock exchanges of Bangladesh. This inductive research uses both pooled OLS regression analysis and panel data (fixed effect) estimation technique for unbalanced panel data to measure, describe, and analyze the firm performance. After controlling some specific variables the present study finds significant positive non-linear relation between R&D expenditure and firm’s financial performance, and R&D expenditure and firm’s market position performance. However, a significant negative relation has found for the firm’s market based performance against R&D expenditure. In other words, investors of Bangladesh do not consider R&D expenditure to be a creator of innovation rather they seem to be affected negatively in their assessment of the firm’s financial condition by R&D expenditure. The study findings may provide useful guidance for entrepreneur, management for pharmaceuticals firms, and the general investors. The assessment of firm’s performance against R&D expenditure can also be a useful source of information for the Bangladesh government’s policy makers.JEL classification numbers: O32, L25, L65, C23Keywords: Research and Development Expenditure, Firm Performance, Pharmaceuticals Industry, Panel Data, Bangladesh Stock Exchanges

Date: 2017
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