This study analyses the association between R&D Investment (RDI) and growth opportunities and show that there exists diminishing marginal returns in manufacturing firms. Extant literature has found that besides R&D investment, systematic risk, financial leverage and complementary
asset investment are also associated with growth opportunities. Accordingly, we employ structural equation modelling to simultaneously estimate both a direct influence of RDI as well as indirect influences of RDI on growth opportunities via these three mediating effects. We find that the direct
effect of incremental RDI on growth opportunities is independent of R&D intensity. Instead, the heterogeneous effects of RDI on systematic risk, financial leverage and complementary asset investment across firms with different R&D intensity level accounts for the diminishing marginal
returns to R&D investment. We specifically observe that the greatest indirect effect is via the financial leverage of the firm. This study shows the importance of accounting for the interdependencies in R&D investment.
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structural equation model;
Document Type: Research Article
UQ Business School, University of Queensland, Brisbane, Australia
NUS Business School, National University of Singapore, 1 Business LinkSingapore 119224, Singapore
NUS Business School, National University of Singapore, Singapore
Faculty of Engineering, Department of Industrial and System Engineering,National University of Singapore, Singapore
Publication date: 01 February 2013
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