Unlocking the Secrets of Profitability: Investigating the Role of Research and Development
Downloads
Objective: The manufacturing sector is crucial for the development of emerging economies. This study aims to examine how research and development influence the firm's financial performance of manufacturing firms.
Design/Methods/Approach: This study employs publicly listed Indonesian firms' panel data from 2017 to 2021. The data are analyzed using the panel data approach.
Findings: The results indicate that research and development positively affect firm financial performance.
Originality: Research and development investment has been commonly carried out in developed countries but is still very limited in developing countries. This study focuses on the role of investment in research and development in determining the financial performance of companies in an emerging country.
Practical/Policy implication: Companies should prioritize cash and risk management to enable business expansion and innovation. Government support can be provided through tax incentives, R&D assistance, financing access, and public recognition of companies with high profitability. These incentives are aimed at enhancing economic growth and corporate competitiveness.
Absanto, G., & Nnko, E. (2013). Analysis of Business Growth Strategies and Their Contribution Tobusiness Growth: a Tanzania Case Study. International Journal of Economics, Commerse & Management 1(1), 1–15.
Agustia, D., Muhammad, N. P. A., & Permatasari, Y. (2020). Earnings Management, Business Strategy, and Bankruptcy Risk: Evidence from Indonesia. Heliyon, 6(2), 1–9. https://doi.org/10.1016/j.heliyon.2020.e03317
Alhammadi, Y., Algahtany, M., Kashiwagi, D., Sullivan, K., & Kashiwagi, J. (2016). The Current State of Research and Development Approach (R&D) in the Saudi Construction Industry. Procedia Engineering, 145, 1462–1469. https://doi.org/10.1016/j.proeng.2016.04.184
Alvi, A. K., Jabeen, Z., Jawaid, A., & Kaur, P. (2020). Relationship of Career Success and Organizational Performance Through the Path of Business Strategy. International Journal of Economics, Management and Accounting, 28(1), 1–33
Amanu, A. D., & Rajendran, M. M. A. (2021). Analyzing Determinants of Financial Performance of Micro Finance Companies in Ethiopia from 2010-2018. Emperical evidence from Ethiopian Micro finance companies. Ecoforum Journal, 10(1), 1–7.
Andersén, J. (2021). A Relational Natural-Resource-Based View on Product innovation: The Influence of Green Product innovation and Green Suppliers on Differentiation Advantage in Small Manufacturing Firms. Technovation, 104, 1–9. https://doi.org/10.1016/j.technovation.2021.102254
Aprisma, R., & Sudaryati, E. (2020). Environmental Uncertainty and Firm Performance: The Moderating Role of Corporate Governance. Jurnal Akuntansi, 24(2), 187–203. https://doi.org/10.24912/ja.v24i2.690
Araújo, J., Pereira, I. V., & Santos, J. D. (2023). The Effect of Corporate Social Responsibility on Brand Image and Brand Equity and Its Impact on Consumer Satisfaction. Administrative Sciences, 13(5), 1–16. https://doi.org/10.3390/admsci13050118
Arte, P., & Larimo, J. (2022). Moderating Influence of Product Diversification on the International Diversification-performance Relationship: A Meta-analysis. Journal of Business Research, 139, 1408–1423. https://doi.org/10.1016/j.jbusres.2021.10.037
Arundel, A., Bloch, C., & Ferguson, B. (2019). Advancing Innovation in the Public Sector: Aligning Innovation Measurement with Policy Goals. Research Policy, 48(3), 789–798. https://doi.org/10.1016/j.respol.2018.12.001
Barge-Gil, A., & López, A. (2014). R&D Determinants: Accounting for the Differences between Research and Development. Research Policy, 43(9), 1634–1648. https://doi.org/10.1016/j.respol.2014.04.017
Barney, J. B. (1996). Resource-Based Theory of the Firm. Organization Science, 7(5), 469–469. https://doi.org/10.4018/9781599044293.ch001
Bungatang, & Jumady, E. (2021). Banking Financial Performance: Mitigation Forms, Efficiency, Capabilities and Debt. Jurnal Akuntansi, 25(2), 330–346. https://doi.org/10.24912/ja.v25i2.813
Castellani, D., Montresor, S., Schubert, T., & Vezzani, A. (2017). Multinationality, R&D and Productivity: Evidence from the Top R&D Investors Worldwide. International Business Review, 26(3), 405–416. https://doi.org/10.1016/j.ibusrev.2016.10.003
Chari, M. D. R., David, P., Duru, A., & Zhao, Y. (2019). Bowman's Risk-Return Paradox: An Agency Theory Perspective. Journal of Business Research, 95, 357–375. https://doi.org/10.1016/j.jbusres.2018.08.010
Chen, T.-C., & Wu, Y. J. (2020). The Influence of R&D Intensity on Financial Performance: The Mediating Role of Human Capital in the Semiconductor Industry in Taiwan. Sustainability, 12(12), 1–19. https://doi.org/10.3390/su12125128
Chen, T., Guo, D.-Q., Chen, H.-M., & Wei, T. (2019). Effects of R&D Intensity on Firm Performance in Taiwan's Semiconductor Industry. Economic Research-Ekonomska Istrazivanja, 32(1), 2377–2392. https://doi.org/10.1080/1331677X.2019.1642776
Choiriyah, C., Fatimah, F., Agustina, S., & Ulfa, U. (2021). The Effect of Return on Assets, Return on Equity, Net Profit Margin, Earning Per Share, And Operating Profit Margin on Stock Prices of Banking Companies in Indonesia Stock Exchange. International Journal of Finance Research, 1(2), 103–123. https://doi.org/10.47747/ijfr.v1i2.280
í‡olak, M. S. (2021). A New Multivariate Approach for Assessing Corporate Financial Risk Using Balance Sheets. Borsa Istanbul Review, 21(3), 239–255. https://doi.org/10.1016/j.bir.2020.10.007
Cuandra, F., & Setiawan, I. (2020). Factors That Affect the Profability of Conventional. International Journal of Economics, Business and Accounting Research, 2020(4), 1105–1110.
Diaz, J. F., & Pandey, R. (2019). Factors Affecting Return on Assets of Us Technology and Financial Corporations. Jurnal Manajemen Dan Kewirausahaan, 21(2), 134–144. https://doi.org/10.9744/jmk.21.2.134-144
Driss, H., Drobetz, W., El Ghoul, S., & Guedhami, O. (2021). Institutional Investment Horizons, Corporate Governance, and Credit Ratings: International Evidence. Journal of Corporate Finance, 67, 1–26. https://doi.org/10.1016/j.jcorpfin.2020.101874
Farida, I., & Setiawan, D. (2022). Business Strategies and Competitive Advantage: The Role of Performance and Innovation. Journal of Open Innovation: Technology, Market, and Complexity, 8(3), 1–16. https://doi.org/10.3390/joitmc8030163
Friesenbichler, K. S., & Kügler, A. (2022). Servitization Across Countries and Sectors: Evidence from World Input-output Data. Economic Systems, 46(3), 1–13. https://doi.org/10.1016/j.ecosys.2022.101014
Galli-Debicella, A. (2021). How SMEs Compete Against Global Giants Through Sustainable Competitive Advantages. Journal of Small Business Strategy, 31(5), 13–21.
Gault, F. (2018). Defining and Measuring Innovation in all Sectors of the Economy. Research Policy, 47(3), 617–622. https://doi.org/10.1016/j.respol.2018.01.007
Ghenimi, A., Chaibi, H., & Omri, M. A. B. (2017). The Effects of Liquidity Risk and Credit Risk on Bank Stability: Evidence from the MENA Region. Borsa Istanbul Review, 17(4), 238–248. https://doi.org/10.1016/j.bir.2017.05.002
Gherghina, S. C., Botezatu, M. A., Hosszu, A., & Simionescu, L. N. (2020). Small and Medium-sized Enterprises (SMEs): The Engine of Economic Growth Through Investments and Innovation. Sustainability, 12(1), 1–22. https://doi.org/10.3390/SU12010347
Grozdic, V., Maric, B., RadiÅ¡ic, M., Å ebestová, J., & Lis, M. (2020). Capital Investments and Manufacturing Firms' Performance: Panel-data Analysis. Sustainability, 12(4), 1–18. https://doi.org/10.3390/su12041689
Guo, B., Wang, J., & Wei, S. X. (2018). R&D Spending, Strategic Position and Firm Performance. Frontiers of Business Research in China, 12(1), 1–19. https://doi.org/10.1186/s11782-018-0037-7
Guo, L. X., Lin, K. L., Zhang, L. T., & Liu, C. F. (2021). Equity Structure, Strategic Investment Psychology, and Performance in China's Green Economy Context. Frontiers in Psychology, 12, 1–12. https://doi.org/10.3389/fpsyg.2021.707582
Gupta, S., Malhotra, N. K., Czinkota, M., & Foroudi, P. (2016). Marketing Innovation: A Consequence of Competitiveness. Journal of Business Research, 69(12), 5671–5681. https://doi.org/10.1016/j.jbusres.2016.02.042
Hakim, M. Z., & Apriliani, D. (2020). Effect of Profitability, Liquidity, Sales Growth, Business Risk, and Asset Structure on Capital Structure. Jurnal Akademi Akuntansi, 3(2), 224–243. https://doi.org/10.22219/jaa.v3i2.12115
Halkos, G., Moll de Alba, J., & Todorov, V. (2021). Analyzing Manufacturing Sector and Selected Development Challenges: A Panel Data Analysis. Energy, 235, 1–11. https://doi.org/10.1016/j.energy.2021.121253
Handoyo, S., Suharman, H., Ghani, E. K., & Soedarsono, S. (2023). A Business Strategy, Operational Efficiency, Ownership Structure, and Manufacturing Performance: The Moderating Role of Market Uncertainty and Competition Intensity and Its Implication on Open Innovation. Journal of Open Innovation: Technology, Market, and Complexity, 9(2), 1–14. https://doi.org/10.1016/j.joitmc.2023.100039
Hund, A., Wagner, H. T., Beimborn, D., & Weitzel, T. (2021). Digital Innovation: Review and Novel Perspective. Journal of Strategic Information Systems, 30(4), 1–39. https://doi.org/10.1016/j.jsis.2021.101695
Killins, R. N. (2020). Firm-specific, Industry-specific and Macroeconomic Factors of Life Insurers' Profitability: Evidence from Canada. North American Journal of Economics and Finance, 51, 1–16. https://doi.org/10.1016/j.najef.2019.101068
Kim, N. L. T., Duvernay, D., & Thanh, H. Le. (2021). Determinants of Financial Performance of Listed Firms Manufacturing Food Products in Vietnam: Regression Analysis and Blinder–Oaxaca Decomposition Analysis. Journal of Economics and Development, 23(3), 267–283. https://doi.org/10.1108/jed-09-2020-0130
Kiraci, M., Celikay, F., & Celikay, D. (2016). The Effects of Firms' R & D Expenditures on Profitability: An Analysis with Panel Error Correction Model for Turkey. International Journal of Business and Social Science, 7(5), 233–240. https://www.researchgate.net/profile/Ferdi-Celikay/publication/340384073_The_Effects_of_Firms%27_R_D_Expenditures_on_Profitability_An_Analysis_with_Panel_Error_Correction_Model_for_Turkey/links/5e85ddb692851c2f5274bc86/The-Effects-of-Firms-R-D-Expenditure
Latifi, M. A., Nikou, S., & Bouwman, H. (2021). Business Model Innovation and Firm Performance: Exploring Causal Mechanisms in SMEs. Technovation, 107, 1–12. https://doi.org/10.1016/j.technovation.2021.102274
Lee, C.-C., & Lin, C.-K. (2019). The Major Determinants of Influencing the Operating Performance from the Perspective of Intellectual Capital: Evidence on CPA Industry. Asia Pacific Management Review, 24(2), 124–139. https://doi.org/10.1016/j.apmrv.2018.01.006
Lee, S., & Yoo, J. (2021). Determinants of a Firm's Sustainable Competitive Advantages: Focused on Korean Small Enterprises. Sustainability, 13(1), 1–16. https://doi.org/10.3390/su13010346
Leow, H., & Lau, W. (2020). Impact of Oversubscription Ratio and Trading Volume on IPO First Three-day Initial Return. Advances in Pacific Basin Business, Economics and Finance, 8, 163–175. https://doi.org/10.1108/S2514-465020200000008008
Liao, L. K., Lin, Y. M., & Lin, T. W. (2016). Non-financial Performance in Product Market and Capital Expenditure. Journal of Business Research, 69(6), 2151–2159. https://doi.org/10.1016/j.jbusres.2015.12.023
Limajatini, Susanti, M., & Anggraeni, R. D. (2022). The Effect of Debt to Asset Ratio, Return on Assets and Total Assets Turn Over on Financial Distress (Empire Study on Chemical Sub-Industry Companies Listed on the Indonesia Stock Exchange in 2018–2020). ECo-Buss, 5(41), 700–710.
Linawati, N., & Halim, R. (2017). the Effect of Financial Performance and Macro Economic Factor to Profitability of Bidder Companies. Jurnal Manajemen Dan Kewirausahaan, 19(2), 99–105. https://doi.org/10.9744/jmk.19.2.99-105
Liu, T. K., Chen, J. R., Huang, C. C. J., & Yang, C. H. (2013). E-Commerce, R & D, and Productivity: Firm-level Evidence from Taiwan. Information Economics and Policy, 25(4), 272–283. https://doi.org/10.1016/j.infoecopol.2013.07.001
Lu, J. R., Hwang, C. C., & Lin, C. Y. (2016). Do Shareholders Appreciate Capital Investment Policies of Corporations? International Review of Economics and Finance, 43, 344–353. https://doi.org/10.1016/j.iref.2015.12.007
Luchs, C., Stuebs, M., & Sun, L. (2009). Corporate Reputation and Earnings Quality. Journal of Applied Business Research, 25(4), 47–54. https://doi.org/10.19030/jabr.v25i4.1016
Lusardi, A., & Mitchell, O. S. (2014). The Economic Importance of Financial Literacy: Theory and Evidence. Journal of Economic Literature, 52(1), 5–44. https://doi.org/10.1257/jel.52.1.5
Marshall, G., & Parra, í. (2019). Innovation and Competition: The Role of the Product Market. International Journal of Industrial Organization, 65, 221–247. https://doi.org/10.1016/j.ijindorg.2019.04.001
MeiryaniI, Huang, S. M., Soepriyanto, G., Jessica, FahleviI, M., Grabowska, S., & Aljuaid, M. (2023). The Effect of Voluntary Disclosure on Financial Performance: Empirical Study on Manufacturing Industry in Indonesia. PLoS ONE, 18(6), 1–27. https://doi.org/10.1371/journal.pone.0285720
Melan, M. F., Lisetyati, E., & Safriliana, R. (2023). Ratio Analysis of Financials and Stock Price of Heavy Construction and Civil Engineering Companies. Journal of Research on Business and Tourism, 3(1), 44–54.
Meliawati, D., Dirgantari, N., Hariyanto, E., & Pratama, B. C. (2022). The Effect of Local Revenue on Capital Expenditure, Infrastructure Financing, Government Accountability Performance System and Budget. International Journal of Economics, Business and Accounting Research, 6(4), 1779–1794.
Monteiroa, A. P., Vale, J., Leitec, E., Lisd, M., & Kurowska-Pyszd, J. (2022). The Impact of Information Systems and Non-financial Information on Company Success. International Journal of Accounting Information Systems, 45, 1–14. https://doi.org/10.1016/j.accinf.2022.100557
Mulyadi, M., Bustami, K., Malik, I., & Inuzula, L. (2021). the Effect of Product Innovation and Market Orientation on Sales Performance in the Home Industry Keripik in Bireuen District. E-Mabis: Jurnal Ekonomi Manajemen Dan Bisnis, 22(2), 77–90. https://doi.org/10.29103/e-mabis.v22i2.688
Nandy, M. (2020). Is There Any Impact of R&D on Financial Performance? Evidence from Indian Pharmaceutical Companies. FIIB Business Review, 9(4), 319–334. https://doi.org/10.1177/2319714520981816
Nukala, V. B., & Rao, S. S. P. (2021). Role of Debt-to-Equity Ratio in Project Investment Valuation, Assessing Risk and Return in Capital Markets. Future Business Journal, 7(1), 1–23. https://doi.org/10.1186/s43093-021-00058-9
O'Connell, V., Ghazaleh, N. A., Tahat, Y., & Whelan, G. (2022). The Impact of R&D Innovation Success on the Relationship between R&D Investment and Financial Leverage. Journal of Open Innovation: Technology, Market, and Complexity, 8(3), 1–15. https://doi.org/10.3390/joitmc8030129
Oliveira, J. A. S. de, Basso, L. F. C., Kimura, H., & Sobreiro, V. A. (2018). Innovation and Financial Performance of Companies Doing Business in Brazil. International Journal of Innovation Studies, 2(4), 153–164. https://doi.org/10.1016/j.ijis.2019.03.001
Onufrey, K., & Bergek, A. (2021). Transformation in a Mature Industry: The Role of Business and Innovation Strategies. Technovation, 105, 1–14. https://doi.org/10.1016/j.technovation.2020.102190
Park, W., Sung, C. S., & Byun, C. G. (2019). Impact of Unlisted Small and Medium-Sized Enterprises' Business Strategies on Future Performance and Growth Sustainability. Journal of Open Innovation: Technology, Market, and Complexity, 5(3), 1–14. https://doi.org/10.3390/joitmc5030060
Pena-Miguel, N., & Pena, J. I. D. La. (2018). New Accounting Information System: An Application for a Basic Social Benefit in Spain. Revista de Contabilidad-Spanish Accounting Review, 21(1), 28–37. https://doi.org/10.1016/j.rcsar.2017.07.002
Piao, X., & Choi, M. (2022). The Different Effects of Firm Resources on Firm Performance under Volatility: An Examination Using Big Data. Discrete Dynamics in Nature and Society, 2022, 1–14. https://doi.org/10.1155/2022/6151667
Prihadyanti, D., & Laksani, C. S. (2015). R & D dan Inovasi di Perusahaan Sektor Manufaktur Indonesia. Jurnal Manajemen Teknologi, 14(2), 187–198. https://doi.org/10.12695/jmt.2015.14.2.5
Rajapathirana, R. P. J., & Hui, Y. (2018). Relationship between Innovation Capability, Innovation Type, and Firm Performance. Journal of Innovation and Knowledge, 3(1), 44–55. https://doi.org/10.1016/j.jik.2017.06.002
Ranerup, A., Henriksen, H. Z., & Hedman, J. (2016). An Analysis of Business Models in Public Service Platforms. Government Information Quarterly, 33(1), 6–14. https://doi.org/10.1016/j.giq.2016.01.010
Salehi, M., Tarighi, H., & Rezanezhad, M. (2019). Empirical Study on the Effective Factors of Social Responsibility Disclosure of Iranian Companies. Journal of Asian Business and Economic Studies, 26(1), 34–55. https://doi.org/10.1108/jabes-06-2018-0028
Salimi, N., & Rezaei, J. (2018). Evaluating Firms' R&D Performance Using Best Worst Method. Evaluation and Program Planning, 66, 147–155. https://doi.org/10.1016/j.evalprogplan.2017.10.002
Setiawan, R., & Gestanti, L. (2018). CEO Education, Financial Decision and Firm Performance. Jurnal Manajemen Teori Dan Terapan, 11(3), 193–206. https://doi.org/10.20473/jmtt.v11i3.10133
Setiawan, R., & Harmasanto, D. H. (2019). Pengeluaran R&D dan Kinerja Perusahaan Manufaktur Di Bursa Efek Indonesia Yang Dimoderasi Oleh Usia Perusahaan. Jurnal Riset Akuntansi Dan Bisnis Airlangga, 4(2), 644–668. https://doi.org/10.31093/jraba.v4i2.165
Setyaningsih, I. P., & Yuliana, I. (2020). Total Assets Turnover Against Dividend Payout Ratio: The Role of Return on Assets Mediation. Jurnal Manajemen Indonesia, 20(3), 206. https://doi.org/10.25124/jmi.v20i3.3517
Shen, K.-Y., Yan, M.-R., & Tzeng, G.-H. (2017). Exploring R and D Influences on Financial Performance for Business Sustainability Considering Dual Profitability Objectives. Sustainability, 9(11), 1–21. https://doi.org/10.3390/su9111964
Sheridan, B. J. (2014). Manufacturing Exports and Growth: When is a Developing Country Ready to Transition from Primary Exports to Manufacturing Exports? Journal of Macroeconomics, 42, 1–13. https://doi.org/10.1016/j.jmacro.2014.06.002
Si, K., Xu, X. L., & Chen, H. H. (2020). Examining the Interactive Endogeneity Relationship between R&D Investment and Financially Sustainable Performance: Comparison from Different Types of Energy Enterprises. Energies, 13(9), 2332. https://doi.org/10.3390/en13092332
Silva, M. R. (2019). Corporate Finance, Monetary Policy, and Aggregate Demand. Journal of Economic Dynamics and Control, 102, 1–28. https://doi.org/10.1016/j.jedc.2019.03.001
Åšlusarczyk, B., & Grondys, K. (2019). Parametric Conditions of High Financial Risk in the SME Sector. Risks, 7(3), 1–17. https://doi.org/10.3390/risks7030084
Sukmawardini, D., & Ardiansari, A. (2018). Influence of Institutional Ownership, Profitability, Liquidity, Dividend Policy, Debt Policy on Firm Value. Management Analysis Journal, 7(2), 211–222. http://maj.unnes.ac.id
Sunaryo, D. (2020). The The Effect of Profitability (Return on Investment) and Financial Risk Against Stock Price Before Covide-19. International Journal of Science, Technology & Management, 1(2), 87–99. https://doi.org/10.46729/ijstm.v1i2.19
Trad, N., Trabelsi, M. A., & Goux, J. F. (2017). Risk and Profitability of Islamic Banks: A Religious Deception or an Alternative Solution? European Research on Management and Business Economics, 23(1), 40–45. https://doi.org/10.1016/j.iedeen.2016.09.001
Tsegaye, M. (2023). Impacts of Internal R&D on Firms' Performance and Energy Consumption: Evidence from Ethiopian Firms. International Journal of Innovation Studies, 7(1), 47–67. https://doi.org/10.1016/j.ijis.2022.09.001
Utami, W. B. (2017). Analysis of Current Ratio Changes Effect, Asset Ratio Debt, Total Asset Turnover, Return on Asset, And Price Earning Ratio In Predictinggrowth Income By Considering Corporate Size In The Company Joined In LQ45 Index Year 2013 -2016. International Journal of Economics, Business and Accounting Research (IJEBAR), 1(1), 25–37. https://doi.org/10.29040/ijebar.v1i01.253
Verhoef, P. C., Broekhuizen, T., Bart, Y., Bhattacharya, A., Qi Dong, J., Fabian, N., & Haenlein, M. (2021). Digital Transformation: A Multidisciplinary Reflection and Research Agenda. Journal of Business Research, 122, 889–901. https://doi.org/10.1016/j.jbusres.2019.09.022
Wahyuni, N., & Gani, A. A. (2022). Reviewing the Firm Value in Terms of Profit, Debt, and Growth. Jurnal Manajemen, 26(1), 121–139. https://doi.org/10.24912/jm.v26i1.843
Xu, J., & Jin, Z. (2016). Research on the Impact of R&D Investment on Firm Performance in China's Internet of Things Industry. Journal of Advanced Management Science, 4(2), 112–116. https://doi.org/10.12720/joams.4.2.112-116
Yeo, H. J. (2018). Role of Free Cash Flows in Making Investment and Dividend Decisions: The Case of the Shipping Industry. Asian Journal of Shipping and Logistics, 34(2), 113–118. https://doi.org/10.1016/j.ajsl.2018.06.007
Copyright (c) 2023 Faizul Mubarok, Zulkifli Sultan, Martino Wibowo, Sippavitch Wongsuwatt
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors who publish with this journal agree to the following terms:
1. The author(s) hold the copyright of the article without restrictions.
2. The author(s) retain publishing rights without restrictions
3. The legal formal aspect of journal publication accessibility refers to Creative Commons Attribution (CC BY).
