Do Mature Firms Gain Higher Economic Value from R&D Investment?

Abstract

Despite the significance of economic value indicators in the measurement of firm value, not much attention has been dedicated to how research and development (R&D) influences firms’ economic value. This study examines the relationship between R&D investments and firms’ economic value and considers the moderating role of age in the relationship using a dataset from manufacturing and information and technology firms in China. The results show that R&D investments impact firms’ economic value positively. This suggests that firms that invest in R&D are rewarded with a monopoly, which increases their market shares, thereby increasing economic value. Again, we find that older firms increase their economic value more than younger ones when they both invest in R&D. Thus, younger firms in China suffer from the liability of newness when they invest in R&D. It is recommended that these younger firms should strive to shorten the time to reap the returns from R&D investments.