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Characteristics of R&D expenditures in Japan's pharmaceutical industry

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  • Sophie Nivoix
  • Pascal Nguyen

Abstract

Characterized by a high level of R&D expenditure, pharmaceutical firms are also subject to specific risks that are reflected in their financial policies. In contrast to other firms, whose investments are directly related to internal cash flows, Japanese pharmaceutical companies do not appear to rely on this source of funds to undertake R&D investments. Our analysis reveals that R&D expenses largely depend on the firm's size and the strength of its balance sheet. More precisely, high levels of debt appear to hold back R&D expenditure, especially when debt has a short-term maturity. These results highlight the importance of funding risky investments with the adequate type of capital to avoid putting firms in financial distress. Despite the risk, R&D investments seem to be justified by the fact that they are generally associated with higher sales growth. However, the difficult conditions prevailing in Japan's pharmaceutical industry make these benefits less visible.

Suggested Citation

  • Sophie Nivoix & Pascal Nguyen, 2012. "Characteristics of R&D expenditures in Japan's pharmaceutical industry," Asia Pacific Business Review, Taylor & Francis Journals, vol. 18(2), pages 225-240, April.
    • Handle: RePEc:taf:apbizr:v:18:y:2012:i:2:p:225-240
    DOI: 10.1080/13602381.2010.540120
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    References listed on IDEAS

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    Cited by:

    1. Sajid Anwar & Sizhong Sun, 2014. "Entry of foreign firms and the R&D behaviour: a panel data study of domestic and foreign firms in China's manufacturing sector," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 23(8), pages 739-757, November.

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