R&D investment and firm performance in IT companies: An empirical investigation across IT industry sectors

Abstract

Many previous studies invariably focused on the linear relationship between R&D investment and firm performance while overlooking there may be a quadratic effect, which may cause mixed and conflicting empirical findings, and leave some business cases difficult to understand. Thus, in this study, using a sample of 1923 IT companies from three industry sectors (i.e., hardware, computer chips and software), we empirically examine the quadratic relationship between R&D investment and firm performance within each IT industry sector. We find that there exists significant quadratic R&Dfirm performance relationship within all these industry sectors. We further find that R&D investment has more impact on firm performance in software companies than in hardware and computer chips companies. From these results, we make theoretical and managerial implications.