R & D expenditures and future innovation: evidence from the chemical industry

Abstract

Purpose

This study aims to investigate whether research and development (R & D) expenditures drive future innovation in the chemical industry.

Design/methodology/approach

This study examines the relation between R & D expenditures for the period of 2000-2002 and the innovation effect measured by the Malmquist Productivity Index (MPI) for the period of 2003-2005. Under the MPI, the innovation effect is measured as the “shift” in a firm’s production frontier between two periods (2003-2005).

Findings

Results indicate that there is a significant and positive relation between R & D expenditures and future innovation among chemical firms.

Originality/value

This study should be of interest to financial accounting policy makers, R & D-intensive companies and investors. To policy makers, they may consider the possibility of permitting R & D-intensive companies to recognize R & D expenditures as assets. In other words, R & D-intensive companies can capitalize and amortize their R & D expenditures, as R & D expenditures can bring them future economic benefits. To R & D-intensive companies, the results may encourage them to keep up their R & D activities. Moreover, this study can increase individual investors’ confidence in investing companies with high-level R & D activities in an R & D-intense industry.

Citation

Sun, L. (2015), "R & D expenditures and future innovation: evidence from the chemical industry", International Journal of Law and Management, Vol. 57 No. 5, pp. 552-560. https://doi.org/10.1108/IJLMA-08-2014-0047