Management Summary Research Study „Analysis of the Relationship Between R&D and Company Performance“

Objective:
The study investigates the impact of Research & Development (R&D) on company performance, with a focus on the Technology, Media, and Telecommunication (TMT) sector. The research examines 132 companies from Europe and Asia (2018-2022) to understand how R&D intensity influences profitability and capital market performance across different cultural and regional contexts.

 

Key Findings:

  1. R&D and Profitability:
    • The analysis shows that R&D intensity does not significantly impact short-term profitability. However, a positive contribution to long-term capital market performance (Tobin’s Q) was observed. This suggests that while immediate returns may be limited, consistent R&D investments contribute to enhanced market valuations, indicating investor confidence in long-term growth potential.
  2. Regional Insights:
    • Asian Companies: R&D intensity had a more substantial influence on performance metrics. These firms exhibited higher efficiency in commercializing innovations, which resulted in faster returns on R&D investments. The data indicated that Asian companies maintained stable R&D investment levels despite market fluctuations, leading to a faster recovery post-COVID-19.
    • European Companies: While European firms demonstrated fluctuating R&D intensity, their overall approach was characterized by larger, incremental innovations. European firms faced challenges with maintaining returns during economic downturns, emphasizing the need for strategic realignment in R&D investments.
  3. Sector-Specific Trends:
    • Companies within the TMT sector were identified as having a strong focus on product innovation. The industry continues to invest heavily in R&D to remain competitive, despite economic pressures.
    • The study highlights the role of strategic R&D investments as a critical tool for sustaining competitiveness and long-term growth, particularly in sectors undergoing rapid technological advancements.

 

Conclusion and Recommendations:

The study underscores the importance of strategic R&D planning, suggesting that companies can achieve better capital market performance with consistent R&D investments, even if immediate profitability gains are modest. European firms may benefit from adopting more adaptive R&D approaches, similar to their Asian counterparts, to enhance agility and improve returns on innovation.

This research provides critical insights for companies considering R&D expenditure strategies and highlights regional differences that can inform cross-border investment decisions. For firms in the TMT sector, maintaining robust R&D funding is essential for driving innovation and sustaining competitive advantage.

 

 

Target groups of stakeholders: Higher management, investors

Citation: Weber, N., Srivastava, M., & Tyll, L. (2024). Analysis of the Relationship Between R&D and Company Performance. Journal of East-West Business, 1–36. https://doi.org/10.1080/10669868.2024.2415022