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The Impact of Investment in R&D on Companies’ Performance

Student: Valeriia Iudina

Supervisor: Elena Rogova

Faculty: St.Petersburg School of Economics and Management

Educational Programme: Finance (Master)

Year of Graduation: 2020

In terms of high level of competition, global uncertainness companies must find new ways to modernize production, implement new technologies in order not only not to leave the market, but also to expand their production. Investments in research and development, that is mainstay of technological progress, is one of the best and effective ways of endogenous growth. Even though such expenses are becoming increasingly popular, their affect on companies’ performance is still unclear. The goal of our work is to determine the impact of R&D expenses on companies’ performance. The data for 6 years (2014-2019) for public traded companies in America, Europe, Asia and Oceania was collected. As a proxy of financial performance such metric were taken: EDITDA, Gross Margin, Market Value, Return on invested capital. Investments in research and development in the first, second and third polynomic were taken as dependent variables, as well as a first, second and third lags from research and development and a group of control variables. Firstly, an econometric analysis of panel data was used for the whole sample. The fixed effects model was adopted as the basis for an identification strategy. As a result, the positive impact of R&D on Market Value, ROIC accepted, as a negative influence on EBITDA and Gross Margin with the positive effect of lagged value. Afterwards, the analysis was taken for each region and economic sector separately. It was found that expenditures on R&D positively and non-linear affect EBITDA and Gross Margin for medium and low take companies with the significant of lagged value. As for about ROIC, expenditures on R&D influence on it positively, besides American medium-tech entities. Moreover, the following pattern was revealed: the more technologically advanced the region, the longer the payback period. For the most part, R&D expenses have a positive effect on the market value of companies, the expectance are American and European high-tech enterprises The results of the study can be generalized to all open companies. Our findings can be useful to top-management, professionals in the areas of consulting services and investment analysis. Key words: High-Tech, research and development, innovation, financial performance.

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