To what extent do earnings affect the R&D decision of Chinese manufacturing firms? |
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Authors: | Yun Wang Yu Zhai Sisira R N Colombage |
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Institution: | 1. School of Economics and Management, Dalian University of Technology, Dalian, People’s Republic of China;2. School of Business, Federation University Australia, Gippsland, Australia |
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Abstract: | ABSTRACTAs R&D activities are involved in inherent uncertainty of large investment, high risk and long return periods, earnings, as the main source of internal financing, have been a significant factor of R&D decision in the firms. In contrast to the previous research, this study investigates the impacts of firm’s earnings on R&D decision, in which earnings are measured by the indicators of earnings level, earnings quality and earnings persistence, while separating firm R&D activity into two stages of (i) the decision to undertake R&D activity and (ii) the amount to be invested on innovation activities. We document that earnings level can increase the probability of undertaking R&D activity, but has no effect on R&D investment intensity. Earnings quality and earnings persistence have a promotional effect on both stages of R&D decision. The empirical evidence of the subsamples shows that the impacts of earnings are heterogeneous across different ownership and technology-intensity firms. |
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Keywords: | Earnings R& D decision earnings level earnings quality earnings persistence |
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