Does Optimal R&D Intensity Level Exist in Chinese Defense Enterprises?

Chi-Wei Su, Kai-Hua Wang, Ran Tao, Oana-Ramona Lobonţ and Nicoleta-Claudia Moldovan

Defence and Peace Economics, 2021, vol. 32, issue 1, 107-124

Abstract: This paper investigates whether there exists an optimal level of research and development (R&D) intensity, at which defense enterprises are able to maximize their market performance. The Panel Threshold Regression Model was applied to probe the link between R&D intensity and sales growth for defense listed enterprises, in China. The empirical results indicate that the Law of Gibrat does not hold and, unlimited input in R&D, does not guarantee positive paybacks. This may lead to the assumption that there is an optimal R&D intensity level in Chinese defense enterprises. Due to the fact that the defense industry has broken entrance barriers and considering the introduction of social capital into R&D activities, managers and top management should set more specific guidelines and provisional benchmarks to ensure effective R&D resource allocation in order to achieve maximum performance.

Date: 2021
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DOI: 10.1080/10242694.2019.1597464

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