R&D based knowledge capital and future firm growth: Evidence from China’s Growth Enterprise Market firms |
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| Institution: | 1. School of International Economics and Trade, Nanjing University of Finance and Economics, Nanjing, China;2. SHU-UTS SILC Business School, Shanghai University, 99 Shangda Road, Shanghai, China;3. UTS Business School, University of Technology Sydney, PO Box 123 Broadway, NSW 2007, Australia;1. School of Data Sciences, Zhejiang University of Finance and Economics, Hangzhou, Zhejiang, 310018, PR China;2. Department of Statistics, The University of British Columbia, Vancouver, BC, Canada;1. Centre for Financial Econometrics, Deakin Business School Deakin University, 221 Burwood Highway Burwood, Victoria, 3125, Australia;2. Faculty of Economics and Business, Universitas Airlangga, JI. Airlangga 4 Surabaya, Indonesia;1. Musashi University, Japan;2. University of Tokyo, Japan;3. Kwansei Gakuin University, Japan;1. Universidad Catolica de Murcia, Avda. Los Jerónimos, 135, 30107 Murcia, Spain;2. Instituto Flores de Lemus, Spain;1. Accident Compensation Corporation, Wellington, New Zealand;2. School of Economics, Finance and Marketing, RMIT University, Building 80, Level 11, 445 Swanston Street, Melbourne, VIC 3000, Australia;1. Faculty of Economics, Chulalongkorn University, Bangkok, Thailand;2. Department of Econometrics and Business Statistics, Monash University, Victoria, Australia |
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| Abstract: | Building upon a dynamic stochastic general equilibrium (DSGE) model, this paper examines the role of knowledge-based capital (KC) in improving firms’ future growth in productivity. Based on the analysis of Chinese listed firms from 2006 to 2017 in the Growth Enterprise Market (GEM), we find KC often generates endogenous movements in productivity and earnings over the business cycles, suggesting that the nature of KC is pro-cyclical. Moreover, investment in KC is often classified as a corporate expense and is thus deducted from the current year’s profits. Therefore, firms with high R&D investments have significantly higher future productivity growth but lower current profitability than do those with lower R&D investments. Given these characteristics, KC’s benefits to productivity and future earnings are thus not immediate. For faster growth in the long term, firms should continue investing in KC even if they may face a short-term fall in corporate earnings as a result of internal knowledge investment, especially for fast-growing GEM firms. |
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| Keywords: | Productivity Knowledge capital R&D China’S growth enterprises E17 O30 E11 |
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