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R&D Intensity and Its Curvilinear Relationship with Firm Profitability: Perspective from the Alternative Energy Sector

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  • Natasha Hazarika

    (Department of Humanities and Social Sciences, Indian Institute of Technology Guwahati, Assam 781039, India)

Abstract

There is an inconclusive debate concerning the relationship between environmental research and development (R&D) and corporate financial performance (CFP). The debate becomes more complex because a win–win situation between environmental and financial goals is not as plausible in practice as it is in theory. Though arguments have been made that when time-lag is considered, the relationship can produce positive outcomes for both entities, ambiguities persist because linear models dominate this analysis. This study, therefore, empirically tested the existence of a curvilinear relationship between R&D intensity and CFP in the context of the alternative energy sector. Using a panel dataset of 24 companies and 232 unbalanced firm-year observations for 10 years, it was found that after passing the inflection points, investment in R&D reaps financial benefits that will eventually offset the cost of the initial investment. The curvilinear relationship of R&D intensity on return on sales and net profit margin is strongly supported.

Suggested Citation

  • Natasha Hazarika, 2021. "R&D Intensity and Its Curvilinear Relationship with Firm Profitability: Perspective from the Alternative Energy Sector," Sustainability, MDPI, vol. 13(9), pages 1-17, April.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:9:p:5060-:d:547280
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