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Innovation, research and development, and firm profitability in Taiwan: Causality and determinants

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  • Huang, Chia-Hui
  • Hou, Tony Chieh-Tse

Abstract

Using data from Taiwanese manufacturing firms for the 2000–2015 period, the results of the system-generalised method of moments revealed the direction of causality from a firm's innovative activities to firm profitability. This study also revealed that the profitability of innovative firms surpassed that of noninnovative firms by employing propensity score matching. We further observed a short-term profit-enhancing effect of a firm obtaining a patent after controlling for firm heterogeneity and the endogeneity problem. Our results indicate that firms that invested in research and development successfully obtained patents, and the protection granted by government-issued patents improved their profitability. These findings have strong policy-related implications; innovation policymakers in the government should ensure a favourable industrial environment that focuses on giving firms incentives to improve performance.

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  • Huang, Chia-Hui & Hou, Tony Chieh-Tse, 2019. "Innovation, research and development, and firm profitability in Taiwan: Causality and determinants," International Review of Economics & Finance, Elsevier, vol. 59(C), pages 385-394.
    • Handle: RePEc:eee:reveco:v:59:y:2019:i:c:p:385-394
    DOI: 10.1016/j.iref.2018.10.004
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    Cited by:

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    2. Skrynkovskyy, Ruslan & Pavlenchyk, Nataliia & Tsyuh, Svyatoslav & Zanevskyy, Ihor & Pavlenchyk, Anatoliі, 2022. "Economic-mathematical model of enterprise profit maximization in the system of sustainable development values," Agricultural and Resource Economics: International Scientific E-Journal, Agricultural and Resource Economics: International Scientific E-Journal, vol. 8(4), December.
    3. Sara Picas & Pedro Reis & António Pinto & José Luís Abrantes, 2021. "Does Tax, Financial, and Government Incentives Impact Long-Term Portuguese SMEs’ Sustainable Company Performance?," Sustainability, MDPI, vol. 13(21), pages 1-16, October.
    4. Franziska Handrich & Sven Heidenreich & Tobias Kraemer, 2022. "Innovate or game over? Examining effects of product innovativeness on video game success," Electronic Markets, Springer;IIM University of St. Gallen, vol. 32(2), pages 987-1002, June.
    5. Meiling Wang & Silu Pang & Ikram Hmani & Ilham Hmani & Cunfang Li & Zhengxia He, 2021. "Towards sustainable development: How does technological innovation drive the increase in green total factor productivity?," Sustainable Development, John Wiley & Sons, Ltd., vol. 29(1), pages 217-227, January.
    6. Cui, Xin & Wang, Chunfeng & Liao, Jing & Fang, Zhenming & Cheng, Feiyang, 2021. "Economic policy uncertainty exposure and corporate innovation investment: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
    7. Jia, Shaoqing & Yang, Liuyong & Zhou, Fangzhao, 2022. "Geopolitical risk and corporate innovation: Evidence from China," Journal of Multinational Financial Management, Elsevier, vol. 66(C).

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    More about this item

    Keywords

    Innovation; Research and development; Patent; Profitability;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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