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Differentiation Strategy, R&D Intensity, and Sustainability of Accounting Earnings: With a Focus on Biotech Firms

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  • Namryoung Lee

    (School of Business, Korea Aerospace University, Goyang 10540, Korea)

  • Jaehong Lee

    (College of Business, Sangmyung University, Seoul 03016, Korea)

Abstract

In this paper, we examine the association between management strategy and a firm’s sustainability of accounting earnings over almost 20,000 firm-year observations in South Korea between 2000 and 2017. Using the differentiation strategy developed by Porter for measuring management strategy, we find that firms that implement the differentiation strategy make more-sustainable accounting earnings, as measured by the persistence of return on assets. In addition, regardless of the magnitude of R&D investments, proper implementation of the differentiation strategy is positively associated with the sustainability of accounting outcomes. However, except when sales increase, a reduction in R&D intensity has a negative impact on the persistence of accounting income for biotech firms. This is because biotech firms are not be able to continue to strengthen core competencies and thus cannot ultimately implement a differentiating strategy effectively.

Suggested Citation

  • Namryoung Lee & Jaehong Lee, 2019. "Differentiation Strategy, R&D Intensity, and Sustainability of Accounting Earnings: With a Focus on Biotech Firms," Sustainability, MDPI, vol. 11(7), pages 1-16, March.
    • Handle: RePEc:gam:jsusta:v:11:y:2019:i:7:p:1902-:d:218442
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    1. Jaehong Lee & Young Soo Yang, 2019. "International Strategy, R&D Intensity, and Sustainable Earnings of Biotech Firms," Sustainability, MDPI, vol. 11(17), pages 1-17, September.
    2. Guangying Xie & Shengyan Wu & Zhengjiang Song, 2022. "Focus on Innovation or Focus on Sales? The Influences of the Government of China’s Demand-Side Reform during COVID-19 and Their Sustainability Consequences in the Consumer Products Industry," Sustainability, MDPI, vol. 14(20), pages 1-21, October.

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