R &amp; D Intensity and Dividend Policy: Evidence from South Korea’s Biotech Firms

Lee Lee

doi:10.3390/su11184837

Abstract

In this paper, we examine the relation between a firm’s research and development (R & D) intensity and dividend payout policy with a focus on biotech firms in a sample of 18,253 firm-year observations in South Korea. We find that biotech firms’ R & D intensity is negatively related to dividend payout. Furthermore, for biotech firms, increased internal cash holding accomplished via a lower dividend policy is positively associated with long-term corporate value. In particular, this study reports that the relation between biotech firms’ cash holding and corporate firm value is significantly positive in firms with high stock dividends. Moreover, it shows that non-biotech firms in the maturity stage of the corporate lifecycle tend to distribute cash dividends, a practice that is relatively uncommon among biotech firms in an R & D steady state.

Highlights

“Today’s business environment, perhaps more than at any other time in modern history, demands a continuous search for new sources of competitive advantage for sustainable growth” [1]
This study argues that an increase in stock dividends by a biotech firm would have the same effect as Hypothesis 2; it would increase firm value by protecting internal funds
The descriptive statistics for the explanatory variables mean that 28% (3% of biotechnology firms) of the sample firms are R & D intensive firms with high levels of cash, and 19% (2% of biotechnology firms) are firms that have high levels of cash but do not pay dividends

Summary

Introduction

“Today’s business environment, perhaps more than at any other time in modern history, demands a continuous search for new sources of competitive advantage for sustainable growth” [1]. Through the improvement of corporate governance, management transparency and shareholder rights were enhanced This increased the effect of a firm’s dividend policy on firm value by considering both current earnings and future profitability [4]. That was in 2015, when Hanmi Pharmaceutical reached an all-time high in the amount of technology exports This led experts to determine that domestic pharmaceutical or biotech firms that focus on domestic demands such as developing generics are inclined to invest stockpiled cash in R & D rather than on dividends. As top firms are spurring R & D for entrance to the global market, they are expanding R & D investment rather than returning cash to shareholders

Results

Discussion

Conclusion