Earnings pressure and R&D cut: the moderating effects of family control and debt

Abstract

PurposeThis study aims to analyze the link between earnings pressure and R&D cut as well as the moderating effects of family control and debt.Design/methodology/approachIn total, 6,130 firm-year observations of Taiwanese-listed firms were used to test the hypotheses by using a panel data regression with fixed effects estimation.FindingsThe study reveals that earnings pressure is positively related to R&D cut, and this relationship can be softened when having the presence of family control and debt.Research limitations/implicationsThis study is conducted based on some conditions: data collection comes from a single source, earnings pressure mainly comes from analysts, R&D intensity is significant among industries, debt is a given condition to managers. Future studies, thus, are suggested to use other approaches to have further information and extend the knowledge without these conditions.Practical implicationsUnder the pressure of meeting analyst forecast, managers have more opportunities to flourish their priority on improving temporary profits rather than implementing R&D investments with costly budget but unpredictable outcomes. In addition to responding to the positive effect of earnings pressure on trimming long-term corporate investments, this study also found some corporate governance mechanisms to soften the managerial short-termism behavior.Originality/valueThe findings partially contribute to broadening the existing knowledge base on the impact of earnings pressure on corporate activities and how some mechanisms serve as moderators.