R&D intensity, firm performance and the identification of the threshold: fresh evidence from the panel threshold regression model

Ming-Liang Yeh, Hsiao-Ping Chu, Peter Sher and Yi-Chia Chiu

Applied Economics, 2010, vol. 42, issue 3, 389-401

Abstract: This article tests whether there is an optimal level of research and development (R&D) intensity at which point a firm is able to maximize its performance. An advanced panel threshold regression model is employed to investigate the panel threshold effect of R&D intensity on firm performance among publicly traded Taiwan information technology and electronic firms. The results confirm that a single-threshold effect does exist and show an inverted-U correlation between R&D intensity and firm performance. This article demonstrates that it is possible to identify the definitive level beyond which a further increase in R&D expenditure does not yield proportional rewards. Some important policy implications emerge from the findings.

Date: 2010
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DOI: 10.1080/00036840701604487

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