The effect of R&D expenses on financial performance: high vs. low R&D intensity industries

This paper examines the effect of R&D expenditure on the financial performance of companies, by comparing a low R&D intensity industry (consumer goods) to a high R&D intensity industry (pharmaceutical). We find that in both industries innovation activities and R&D expenses bring about better financial performance. Specifically, increasing R&D intensity boosts revenues. However, this occurs, but with a time lag. Low R&D intensive companies gain benefits from R&D investments more rapidly than high R&D intensive companies. In the two industries, time lag varies due to the specificities and peculiarities of R&D procedures, product production, distribution, and other processes. Finally, the paper shows that the effect of R&D expenses varies across the companies in the industries analysed. R&D expenses in pharmaceutical companies induce higher revenue growth, compared to consumer goods firms.