Journal of Applied Finance & Banking

An Empirical Study on the Relationship between R&D and Financial Performance

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  • Abstract

    This study investigates the relationship between R&D investment, patent filings and financial success for firms. Firms which have high degrees of R&D investment and large numbers of patents are referred to as “high innovation energy corporations”. This study investigates the financial performance of such firms among a sample of Taiwanese high-tech companies from 2000 to 2011. Findings indicate that the lag between R&D expense and benefit, and the lead periods for patents (i.e., the duration of the application process) significantly affect stock returns. Moreover, these delays and a firm’s R&D expense rate also impact net sales. In other words, firms with a high level of innovative energy have better stock returns and net sales, but such firms do not have an advantage in terms of operating income. Empirical results indicate that higher R&D expenses increase operating costs which, in turn, decreases operating income despite increased net sales.