Impact of R&D Expenditure on Financial Performance: Jordanian Evidence

Abstract

The purpose of this study is to investigate whether expenditure on research and development (R&D) has an impact on the performance of Jordanian pharmaceutical companies listed on the Amman Stock Exchange in Jordan.It is believed that there is no Jordanian study to date that has examined the impact of R&D expenditure on company performance. Therefore, this study contributes significantly to the limited literature on this topic in relation to developing countries.For this purpose, we used a quantitative approach to study data on the whole population, which consists of six firms, for the period 2006 to 2015. Data about R&D were collected over the period 2006-2010 and about performance over the period 2011-2015. We conducted an empirical study using simple linear regression analyses to discover the effect of R&D on company performance. We used return on assets (ROA), return on equity (ROE) and earnings per share (EPS) as a proxy to measure company performance, and to measure R&D expenditure we considered the following items: research, experiments, studies, and courses.

This research found that there is a significant impact of R&D expenditure on company performance as measured by (ROA, ROE and EPS), which is consistent with the results for developed countries. Also R&D expenditure in the current year leads to future benefit such as larger market share, higher share price, better reputation in current and subsequent year's. These results imply that it is very important for companies to change their policy with respect to investment in R&D activities.

Keywords: R&D expenditure, company performance, pharmaceutical sector, Jordan