EXCERPT | The Internal Factors Affecting the R&D Investment

EXCERPT | The Internal Factors Affecting the R&D Investment

By Lijun Liu
Management School, Jinan University, Guangzhou, China

EXCERPT | The Internal Factors Affecting the R&D Investment

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In the study of the impact of Research and Development (R&D) investment from the company itself, this article mainly examines the impact of corporate governance mechanisms, human resources, financial conditions and other internal factors on R&D investment.

Corporate Governance:

On the impact of corporate governance mechanism on corporate R&D investment, many domestic scholars have studied from the perspective of the size of the board of directors, executive incentive mechanism, ownership concentration and equity. Evidence from China Gem enterprise data shows that the number of board members and the proportion of executive stock ownership can promote the research and development strength (Liu Xiaoyuan & Li Yongzhuang, 2012). By using the world bank survey data on China’s manufacturing enterprises in 1483, Li Chuntao studied the effect of executive compensation incentive on R & D investment under different ownership structure, which found that the state-owned enterprise is higher than the private enterprise in the R&D intensity, and the manager’s salary incentive can promote the innovation of the enterprise (Li Chuntao & Song Min, 2010). Furthermore, research on Chinese Listed Companies demonstrate that high tech listed companies implementing executive stock incentive are tending to promote their R&D investment (Tang Qingquan & Xie Weimin, 2013), but there is no significant positive correlation between institutional ownership and R & D investment, and the impact of different institutional investors on R & D investment is different (Li Yingzhao & Wu Jihui, 2013). Wen Fang studied R & D data from China listed companies, and found that the incentive effects of equity type on listed company R&D investment intensity ranked from strong to weak: private property holdings, holdings of state-owned enterprises directly under the central government, the local state-owned holding enterprises, state-owned assets management institutions holding (Wen Fang, 2008). In addition, evidence from listed manufacturing and IT industry companies shows that the R&D intensity of state-controlled listed companies is significantly lower than that of non-state-owned listed companies.

Human Resources:

From the perspective of human resources, top management team has become the main research subject. In view of Luo Zhengying (Luo Zhengying, Tang Lingling, & Chang E, 2013), the average age of the top management team has no significant impact on R & D investment, but their average tenure is negatively correlated with corporate R & D, and the proportion of the team members with technical background and corporate R&D investment was positively correlated. Besides, the number of R&D personnel and R&D investment is positively related and the number of R&D personnel changes in R&D investment is significantly positive correlation.

Financial Situation:

Another main focus of the research on the factors influencing the R&D investment is the financial situation of the enterprise. Insight from China small board listed companies demonstrates that the more redundant financial resources the company possesses the harder it will promote R&D investment. On the other hand, strict corporate financial control may hinder company’s R&D investment, the corporate debt ratio is negatively correlated with R&D investment, corporate profits have significant positive correlation with R&D intensity of private enterprises and foreign-funded enterprises, but the state-owned enterprises are not significant (Cheng Liwei & Dai Xiaoyong, 2012).

Other Internal Factors:

In fact, the size of the enterprise also directly affects the ability of research and development and affects the R&D input. According to Jiang Tao’s research, there is a positive correlation between R&D investment and firm size (Jiang Tao, 2013). Besides, based on data from 1465 A -stock companies from 2010-2013, Jiang Nanchun’s study shows that earnings per share have significant positive correlation with R&D intensity while asset-liability ratio has significant negative correlation with R & D intensity (Jiang Nanchun, 2015).

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