The Impact of R&D Expenditures on Corporate Performance: Evidence from Slovenian and World R&D Companies

Round 1

Reviewer 1 Report

This is an interesting paper that examines the relationship between the Research & Development (R&D) investment and corporate performance in Slovenia. The paper is written well, and the topic and results are interesting.

My main comment is regarding the endogeneity of R&D expenditures. The authors mention data limitations so I understand if it is not possible to check robustness of results using IV regressions but they should at least discuss the endogeneity of R&D.

In addition, there may also be concern for reverse causality. Is it possible that corporate performance affects R&D expenditures in the first place. Again, I know data limitations may prevent a comprehensive analysis of the endogeneity and causality issues but these should at least be discussed in the paper.

Author Response

Point 1: This is an interesting paper that examines the relationship between the Research & Development (R&D) investment and corporate performance in Slovenia. The paper is written well, and the topic and results are interesting.

 

Response 1: Thank you very much for recognising the interesting contribution of the paper.

 

Point 2: My main comment is regarding the endogeneity of R&D expenditures. The authors mention data limitations so I understand if it is not possible to check robustness of results using IV regressions but they should at least discuss the endogeneity of R&D.

 

Response 2: According to data limitations, it is not possible to check robustness of results by using more sophisticated econometric approaches and techniques. We are aware of endogeneity problems. This is now discussed in the subsection “5.3. Limitations and Future Research”.

 

Point 3: In addition, there may also be concern for reverse causality. Is it possible that corporate performance affects R&D expenditures in the first place. Again, I know data limitations may prevent a comprehensive analysis of the endogeneity and causality issues but these should at least be discussed in the paper.

 

Response 3: This point is related to the previous one. Data limitations do not allow us to conduct more sophisticated econometric approaches and techniques. The awareness of this issue is now elaborated in the subsection “5.3. Limitations and Future Research”.

 

 

Reviewer 2 Report

The paper titled "The Impact of R&D Expenditures on Corporate Performance: Evidence from Slovenian and World R&D Companies" deals with highly relevant topic in both academic and professional disclosure - the impact of R&D expenditures on corporate performance. The paper contains all relevant and very well described parts of a scientific paper (introduction, theoretical considerations and literature review, data and research methods, results and concluding remarks). The scientific contribution of the paper is very high since the empirical results provide interesting results regarding the impact of R&D expenditures on corporate performance both in Slovenian companies and abroad. The author(s) found that R&D expenditures are an important determinant of operating and market performance both in Slovenian and world R&D companies. Except in the academic area, this paper also has an impact on the professional area where top managers of the Slovenian and worldwide companies are introduced with the relationship between R&D expenditure and operating and market performance.

Author Response

Point 1: The paper titled "The Impact of R&D Expenditures on Corporate Performance: Evidence from Slovenian and World R&D Companies" deals with highly relevant topic in both academic and professional disclosure - the impact of R&D expenditures on corporate performance. The paper contains all relevant and very well described parts of a scientific paper (introduction, theoretical considerations and literature review, data and research methods, results and concluding remarks). The scientific contribution of the paper is very high since the empirical results provide interesting results regarding the impact of R&D expenditures on corporate performance both in Slovenian companies and abroad. The author(s) found that R&D expenditures are an important determinant of operating and market performance both in Slovenian and world R&D companies. Except in the academic area, this paper also has an impact on the professional area where top managers of the Slovenian and worldwide companies are introduced with the relationship between R&D expenditure and operating and market performance.

 

Response 1: Thank you. It is a pleasure to hear that you recognise the importance, relevance and contribution of the paper.

 

 

 

 

 

Reviewer 3 Report

My question is :about the sampling case studies (as authors states_"the study seeks to empirically verify....") justification_ please argue more strongly methodologically. 

Results of this research of course is interesting (descriptive statistics of variables are presented for the sample of Slovenian 265 companies and world R&D companies separately), but it would have been more interesting to researchers' community and more stronger in methodology area when authors can incorporate a qualitative research strategy.

As I can state: a combined research design would allow for a deeper reflection of presented quantitative data analysis and will help triangulate the final research data.  

Moreover, when authors of this paper state, that: "This paper is focused on examining the impact of R&D expenditures on corporate performance", I can state, that study only empirical results can't answer this question.

In order to answer the question of a scientific problem, the results of quantitative research strategy could be included (for example: some interviews or narratives).

 

 

 

Author Response

Point 1: My question is: about the sampling case studies (as authors state "the study seeks to empirically verify...") justification: please argue more strongly methodologically. Results of this research of course is interesting (descriptive statistics of variables are presented for the sample of Slovenian 265 companies and world R&D companies separately), but it would have been more interesting to researchers' community and more stronger in methodology area when authors can incorporate a qualitative research strategy. As I can state: a combined research design would allow for a deeper reflection of presented quantitative data analysis and will help triangulate the final research data. Moreover, when authors of this paper state, that: "This paper is focused on examining the impact of R&D expenditures on corporate performance", I can state, that study only empirical results can't answer this question. In order to answer the question of a scientific problem, the results of quantitative research strategy could be included (for example: some interviews or narratives).

 

Response 1: Thank you very much for your comment and suggestion regarding incorporating a qualitative research strategy is very relevant. We also thought about a qualitative approach in order to extend the study. However, the main problem is that the data for Slovenian companies, which are provided by the Statistical Office of the Republic of Slovenia (SORS), are strictly confidential (please see a note below Table 4), so unfortunately we were not able to identify, which companies are actually in our sample. Accordingly, this make the incorporation of a qualitative research strategy in that case almost impossible, since we are not able to merge non-financial data obtained through potential surveys or interviews with financial data for the sample of Slovenian companies. Nevertheless, we are aware that this is one of the limitation of the study, so we emphasize this in the subsection “5.3. Limitations and Future Research”.

 

 

Reviewer 4 Report

The R&D expenditure intends to reinforcing corporate profits. The research about R&D is required to inspect if this will happen, when, and how. The results of various empirical studies show a different impact of R&D on firm performance depending on the size, industry, time, and the kind of investigated performance. Non-listed firms are affected in the short-term and long-term profitability. Listed firms are affected both in the short and long-term profitability and stock performance.

Given these contexts, your research:

Aims to examine the impact of R&D expenditures on corporate performance.

To achieve the research objective, you analyze two databases. One for Slovenian companies and one for international companies.

The database of Slovenian companies is for non-listed companies, and the database of international companies is for listed companies.

For Slovenian firms, you examine the impact of R&D expenditures on operating performance, and for international firms, you analyze the effect of R&D on operating performance.

The stated limitations are:

Different periods of the two bases Short time data of both databases Use of simple regression rather than specialized econometric analysis Lack of non-financial information; and Does not account for the characteristics of the industry and different economic systems

At the same time, the literature review confirms the multitude of different conclusions of other research on the subject.

 

Accordingly to the above, please note the following observations:

General remark: The stated limitations make the findings of the research inadequate and weak. It will be a significant upgrade if you avoid the last limitation. Maybe you can classify your data in sectors and have results for each sector.

Specific comments on the control of Slovenian businesses:

Data have been used for five years by a national database, and 3399 annual observations have been obtained.

In the relative table shown (line 132) for each year, there is a different number of observations, which means that different companies are audited each year. If this is happened, that is wrong.

It is probably a mistake as a whole because 3399 observations over five years correspond to 679.8 companies. You need an explanation for that.

Companies with total sales below € 10,000 have been removed from the total. What is the composition of the sample in terms of revenue? A company with 20,000 sales and a 100% increase in sales with R&D expenditures of € 5,000 does not give credibility to the sample.

Also, are there old companies and new ones? What is the composition of old and new?

Specific comments on the control of International Business:

Data have been drawn up not from a financial database but from EU Industrial R&D Investment Scoreboard, and for only three years, resulting in a lack of sufficient accounting figures.

The three years cannot be accepted for reliable conclusions

Business performance is also judged by many financial and non-financial indicators (Non-financial indicators are not only modernity, see balanced scorecard).

The performance of R&D investments, as the researchers report, perform at different times depending on the subject. As there is no separation of different sectors, conclusions on immediate and future impact are not substantiated

Author Response

Point 1: General remark: The stated limitations make the findings of the research inadequate and weak. It will be a significant upgrade if you avoid the last limitation. Maybe you can classify your data in sectors and have results for each sector.

 

Response 1: Thank you very much for your comment. The main idea of this paper is to establish the impact of R&D expenditures on corporate performance in general by using two different panel datasets covering Slovenian and world R&D companies in order to make a “rough” comparison (as far as data permits). It should be emphasized that the data for Slovenian companies, which are provided by the Statistical Office of the Republic of Slovenia (SORS) are strictly confidential (please see a note below Table 4), which gives additional value to this paper. Nevertheless, we are fully aware of limitations and they are clearly elaborated in the subsection “5.3. Limitations and Future Research”. Unfortunately, the classification of the companies in different sectors would result to a large drop in sample size, since companies are very fragmented by different sector as well as other relevant characteristics such as size, legal organizational form, etc. This would probably also undermine the overall reliability of the results. Moreover, the economic characteristics are also hard to handle. This is especially the case for world R&D companies. Namely, many business operations of top corporate R&D investors are often performed by their subsidiaries operating all over the world. Therefore, it would be very difficult to identify the “right” institutional framework for these companies (Reference: Ciriaci, D., Grassano, N., & Vezzani, A. (2019). Regulations and location choices of top R&D investors worldwide. Structural Change and Economic Dynamics, 49, 29-42).

 

Point 2: Specific comments on the control of Slovenian businesses Data have been used for five years by a national database, and 3399 annual observations have been obtained. In the relative table shown (line 132) for each year, there is a different number of observations, which means that different companies are audited each year. If this is happened, that is wrong. It is probably a mistake as a whole because 3399 observations over five years correspond to 679.8 companies. You need an explanation for that. Companies with total sales below € 10,000 have been removed from the total. What is the composition of the sample in terms of revenue? A company with 20,000 sales and a 100% increase in sales with R&D expenditures of € 5,000 does not give credibility to the sample. Also, are there old companies and new ones? What is the composition of old and new?

 

Response 2: As regards the sample size, the number of company-year observations is correct. In the subsection “3.1. Sample Selection” it is emphasized that we are dealing with unbalanced panel dataset of Slovenian companies. According to the idea of the paper, i.e. to establish the impact of R&D expenditures on corporate performance in general, it is actually desirable to obtain as many company-year observations as possible. Moreover, software (STATA) is able to handle unbalanced panel data. Of course, when estimating models with a 1-year lagged R&D intensity (RDI_t-1), only those companies with available lagging RDI_t-1 are considered in the analysis. We have also tried to make a balanced sample of Slovenian companies. However, there would be a very large drop in sample size, which would probably undermine the overall reliability of the results. Briefly, we wanted to make the most of the database in this paper by including as many Slovenian companies as possible. Nevertheless, we believe that the Statistical Office of the Republic of Slovenia (SORS) will improve the database by increasing the sample of Slovenian companies in the following years.

 

Companies with less than EUR 10,000 in net sales are excluded from the analysis in order to mitigate the small deflator problem. Moreover, such selection was also made in order to increase the credibility of the sample. In this context, it should be also emphasized that Slovenia is a small open economy characterised by a high proportion of smaller and non-listed companies. This is now emphasized in section “1. Introduction”. Accordingly, if we would exclude also companies with higher amounts of net sales, the sample would not be representative for Slovenian economy anymore. Therefore, additional analysis on world R&D companies is made in order to obtain additional empirical insights for large and listed companies. As regards the age of the company, unfortunately this information was not available in the dataset of Slovenian companies provided by the Statistical Office of the Republic of Slovenia (SORS).

 

Point 3: Specific comments on the control of International Business: Data have been drawn up not from a financial database but from EU Industrial R&D Investment Scoreboard, and for only three years, resulting in a lack of sufficient accounting figures. The three years cannot be accepted for reliable conclusions. Business performance is also judged by many financial and non-financial indicators (Non-financial indicators are not only modernity, see balanced scorecard). The performance of R&D investments, as the researchers report, perform at different times depending on the subject. As there is no separation of different sectors, conclusions on immediate and future impact are not substantiated.

 

Response 3: We are fully aware of limitations, which are clearly elaborated in the subsection “5.3. Limitations and Future Research”. The emphasis in this paper is primarily on a sample of Slovenian companies by using strictly confidential data provided by the Statistical Office of the Republic of Slovenia (SORS). The additional analysis is made in order to reconfirm the results for operating performance and to obtain some additional insights for market performance, as the sample of Slovenian companies consists only of non-listed companies. Moreover, the lack of non-financial indicators does not allow us to extend the empirical analysis. Accordingly, also more in-depth sectoral analysis would be hard to conduct.

Reviewer 5 Report

No comments

Author Response

Thank you for excellent grades.

Reviewer 6 Report

Dear author/s,

The topic of the paper is interesting, but there a few aspects, that I consider could be improved:

Please provide a figure in order to show all the links of the testes hypthoyeses. Please emphasize the link between the scope of the journal and the aim of the paper. At this moment the paper os quite difficult to fallow. Please try to be more systematic, especially in the results part. For a better understanding write 3 regression ecuations for ROA, ROE, ROS instead of the one noted as PRO (lines 247-248). It should be clarified why the choice of the regression model was not made based on the particularities of the data and on the specific assumptions of each model. Please explain why it was necessary to run 3 different models and afterwards chose the most proper one.  The regression model should be mentioned in the methodology section along with the steps and the specification test used for choosing the final model. Others: please mention the measurement units in the tables (e.g table 1), please pay attention to the format of the paper 

Good luck!

Author Response

Point 1: Please provide a figure in order to show all the links of the tested hypotheses. Please emphasize the link between the scope of the journal and the aim of the paper.

 

Response 1: In the subsection “3.3. Research Methods”, a comprehensive figure with short description (please see Figure 1) is presented in order to show all the relationships proposed by the research hypotheses. This figure reflects the proposed research hypotheses by providing consistency with all of the regression equations, which are presented in the following text. Moreover, the link between the scope of the journal and the aim of the paper is now emphasized in “Abstract” as well as in the section “1. Introduction”. In the section “1. Introduction” we included some new and relevant references addressing this topic, providing additional background.

 

Point 2: At this moment, the paper is quite difficult to fallow. Please try to be more systematic, especially in the results part. For a better understanding write 3 regression equations for ROA, ROE, ROS instead of the one noted as PRO (lines 247-248).

 

Response 2: The paper also is improved in terms of its readability. The paper has now a better structure, especially in the section “4. Empirical Results. The suggestion for writing three separated equations for ROA, ROE and ROS makes a huge improvement of the paper, contributing to better paper readability in this part. Consequently, we also changed the numbering of the equations in the paper (in tables and main text), which additionally makes the paper more readable. Moreover, the Figure 1 in the subsection “3.3. Research Methods” provides the structure of the research, which additionally contributes to better clarity of the research design.

 

Point 3: It should be clarified why the choice of the regression model was not made based on the particularities of the data and on the specific assumptions of each model. Please explain why it was necessary to run 3 different models and afterwards chose the most proper one. The regression model should be mentioned in the methodology section along with the steps and the specification test used for choosing the final model.

 

Response 3: In the subsection “3.3. Research Methods” the choice of the suitable regression model is now better explained. We also emphasized that we considered the particularities of the data when choosing the most suitable econometric specification. Than we proceed with a three-step procedure for statistical determination of the most suitable econometric specification, which actually confirms our expectations. Moreover, an application of panel data regression analysis on a sample of Slovenian and world R&D companies is now emphasized in the subsection “3.3. Research Methods”. Moreover, at the end of this section a three-step procedure for identifying the most suitable economic specification for the data used in the empirical analysis is clearly described. By considering your suggestions, the description of research methods in the paper are now improved and adequately described. These improvements also contributes to better clarity of the empirical results and conclusions.

 

Point 4: Others: please mention the measurement units in the tables (e.g. Table 1), please pay attention to the format of the paper.

 

Response 4: The measurement units in the tables (please see Table 1 and Table 2) are now highlighted in tables as well as in table captions. Moreover, when considering the proposed suggestions for paper improvement, we have consistently followed the instruction for authors. Thus, the format of the paper is appropriate.

Round 2

Reviewer 6 Report

Dear author/s,

Thank you for the improved version of the manuscript.

Good luck!