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The effect of R&D investments on firm performance

Kremer, Joost (2024) The effect of R&D investments on firm performance.

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Abstract:This paper studies the relationship between R&D investments (measured by R&D intensity) and firm performance (measured by ROA). The goal of this study is to check whether there is a relationship between these two constructs and if yes, whether it is positive or negative. Moreover, the second part of this study focuses on the difference between Service and Non-service firms in terms of this relationship. This research uses a sample of 100 firms, of which 50 Service firms and 50 Non-service firms. This research finds that there is no significance for a linear relationship between R&D intensity and firm performance. However, there is empirical evidence for a negative relationship, but the relationship seems to be non-linear. It is found that the negative effect of R&D intensity on firm performance is more prominent when the level of R&D intensity is rather low. Furthermore, by studying the differences between Service and Non-service firms, it is found that the effect is negative and significant for Non-service firms, while it is positive (but insignificant) for Service firms. This study contributes to theory and practice by shedding light on the sign of this relationship, but also on the non-linear characteristics of it.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:83 economics, 85 business administration, organizational science
Programme:Business Administration MSc (60644)
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