The Impact of Lagged R&D Expenses on Firm Performance: Empirical Evidence from the BSE Healthcare Index

Abhijit Sinha
Keyarani Mondal

Abstract

The study finds the impact of lagged Research and Development expenditure on financial performance. The investigation analyses 69 pharmaceutical companies included in the BSE healthcare index (India) using secondary data for the period of 2008 to 2017. The two dependent variables which are considered separately are Return on Asset (ROA) and Return on Equity (ROE). The two estimated regression models show that both the lagged value and its quadratic term have a significant influence on the accounting-based measures. With regard to the control variables, size and leverage are found to influence negatively whereas liquidity poses a positive effect on these two accounting-based performance measures. The article contributes by highlighting that the true relationship between R&D and financial performance is represented by a U-shaped curve as evident in few other studies.

Keywords: Lagged R&D, Firm Performance, ROA, ROE, BSE Healthcare Index

Volume 11, Issue 2
December 31, 2020
Pages: 114-141

DOI: http://doi.org/10.4038/cbj.v11i2.66

Suggested citation:

Sinha, A., & Mondal, K. (2020). The impact of lagged R&D expenses on firm performance: Empirical evidence from the BSE healthcare index. Colombo Business Journal. 11(2), 114-141.  http://doi.org/10.4038/cbj.v11i2.66

Abhijit Sinha
Department of Commerce, Vidyasagar University, India
abhijitsinha_091279@rediffmail.com

Keyarani Mondal
Department of Commerce, Vidyasagar University, India