R&D, profit persistence and firm performance: empirical evidence from Indian food processing industry

Abstract

The present work analyses the dynamic relationship between research and development (R&D) intensity and performance for the firms operating in the food processing industry in India. The study also analyses the incidence of profit persistence among Indian food processing firms. The current study deploys dynamic panel methodology. A sample of 157 publicly listed firms operating in the food processing industry in Indian for the period 2005 to 2014 has been considered. The results show that there exists a positive and persistent relation between profitability and R&D intensity. Also, a moderate level of persistence in the profitability was found for the sample companies. The results also indicate a possible inverted U-shape relationship between R&D intensity and profitability. The current results bear several implications for the managers of the food processing firms in India. The study highlights that these firms may be overspending in R&D. This may yield negative returns in the long-run. Thus, food processing firms should try and find out the optimal level of R&D investments.