Abstract
The issue concerning the increasing research and development (R&D) investment in emerging markets is especially attractive for many researchers and practitioners. This paper measures and compares the characteristics of Chinese and South Korean R&D expenditures of manufacturing companies from 2012 to 2016. It also examines the impact of R&D investment on firm performance. The results show that debt maturity and cash reserves are positive determinants of R&D investment in China and South Korea. Firm size, internal financing, and debt ratio are restrictive factors of R&D intensity in Chinese manufacturing companies, while debt ratio is the only negative determinant of R&D investment in their South Korean counterparts. The results also show that R&D intensity exhibits a strong positive impact on the performance of manufacturing companies in both countries. Moreover, this impact is stronger in South Korea than in China. In addition, R&D investment has a positive time-lag effect only on the performance of Chinese manufacturing companies. Our study presents some new evidence for the relationship between R&D intensity and firm performance in emerging markets.
Highlights
The manufacturing industry in emerging markets has been facing numerous issues, such as sustainability, because of changes in the landscape of global manufacturing [1]
From the 2016 edition of the European Union (EU) Industrial research and development (R&D) Investment Scoreboard released by the Economics of Industrial Research and Innovation (IRI), we get to know that Chinese companies continued to show the best performance with regard to R&D growth, and presented a significant decrease in net sales (−6.2%), and South Korean companies showed a more modest R&D growth and a slight decrease in net sales [9]
We observe that the financing of R&D investment in China’s manufacturing sector does not depend on internal funds, which is consistent with what Nivoix and Nguyen [30] have reported for Japanese pharmaceutical companies
Summary
The manufacturing industry in emerging markets has been facing numerous issues, such as sustainability, because of changes in the landscape of global manufacturing [1]. Large companies spend substantial amounts of money on research and development (R&D) activities in order to obtain competitive advantages, which leads to higher operating performance [4]. It seems that R&D investment can bring greater benefits during an economic crisis. Since the firm’s internal resources (both tangible and intangible) are limited, it is reasonable for a firm to optimally allocate their resources in order to achieve a sustainable competitive advantage. Asia’s emerging economies have relatively incomplete and imperfect financial systems and capital markets compared with developed countries, which leads to difficulties in financing R&D projects [11]. An absence of studies pertaining to the determinants of R&D investment in the context of emerging economies is the primary motivation for this paper
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