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The Effects of Research and Development Expenditure on Firm Performance: an Examination of Pharmaceuticals Industry in Bangladesh

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  • Jannatul Ferdaous
  • Mohammad Mizanur Rahman

Abstract

The purpose of this study is to provide a comprehensive evaluation of firm performance against R&D expenditure. The issue of firm performance is measured within the purview of financial performance, market position performance, and market based performance. The data have been collected for the period of 2001-2015 from listed pharmaceuticals firms in stock exchanges of Bangladesh. This inductive research uses both pooled OLS regression analysis and panel data (fixed effect) estimation technique for unbalanced panel data to measure, describe, and analyze the firm performance. After controlling some specific variables the present study finds significant positive non-linear relation between R&D expenditure and firm’s financial performance, and R&D expenditure and firm’s market position performance. However, a significant negative relation has found for the firm’s market based performance against R&D expenditure. In other words, investors of Bangladesh do not consider R&D expenditure to be a creator of innovation rather they seem to be affected negatively in their assessment of the firm’s financial condition by R&D expenditure. The study findings may provide useful guidance for entrepreneur, management for pharmaceuticals firms, and the general investors. The assessment of firm’s performance against R&D expenditure can also be a useful source of information for the Bangladesh government’s policy makers.JEL classification numbers: O32, L25, L65, C23Keywords: Research and Development Expenditure, Firm Performance, Pharmaceuticals Industry, Panel Data, Bangladesh Stock Exchanges

Suggested Citation

  • Jannatul Ferdaous & Mohammad Mizanur Rahman, 2017. "The Effects of Research and Development Expenditure on Firm Performance: an Examination of Pharmaceuticals Industry in Bangladesh," Business & Entrepreneurship Journal, SCIENPRESS Ltd, vol. 6(2), pages 1-1.
    • Handle: RePEc:spt:busent:v:6:y:2017:i:2:f:6_2_1
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    References listed on IDEAS

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    1. Jones, Charles I & Williams, John C, 2000. "Too Much of a Good Thing? The Economics of Investment in R&D," Journal of Economic Growth, Springer, vol. 5(1), pages 65-85, March.
    2. repec:lic:licosd:32112 is not listed on IDEAS
    3. Kancs, d’Artis & Siliverstovs, Boriss, 2016. "R&D and non-linear productivity growth," Research Policy, Elsevier, vol. 45(3), pages 634-646.
    4. Morgan, Neil A. & Slotegraaf, Rebecca J. & Vorhies, Douglas W., 2009. "Linking marketing capabilities with profit growth," International Journal of Research in Marketing, Elsevier, vol. 26(4), pages 284-293.
    5. Aswath Damodaran, 1999. "Research and Development Expense: Implications for Profitability Measurement and Valuation," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-024, New York University, Leonard N. Stern School of Business-.
    6. Megna, Pamela & Mueller, Dennis C, 1991. "Profit Rates and Intangible Capital," The Review of Economics and Statistics, MIT Press, vol. 73(4), pages 632-642, November.
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    Cited by:

    1. Abdul Hai Rathore & Abdullah Sahi, 2022. "The impact of Corporate Governance on voluntary disclosure of R&D expenditure of USA Pharmaceutical firms," Journal of Policy Research (JPR), Research Foundation for Humanity (RFH), vol. 8(2), pages 34-53, August.

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    More about this item

    Keywords

    research and development expenditure; firm performance; pharmaceuticalsâ industry; panel data; bangladesh stock exchanges;
    All these keywords.

    JEL classification:

    • 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
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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