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.
