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Impact of R&D on profitability in the pharma sector: an empirical study from India

Impact of R&D on profitability in the pharma sector: an empirical study from India PurposeThe purpose of the current paper is to examine the nature of profit persistence and to estimate the dynamic relationship between research and development (R&D) intensity and firm profitability in the Indian pharmaceutical industry.Design/methodology/approachA dynamic panel data model with generalized methods of moments (GMMs) technique has been deployed to estimate the relationship between R&D intensity and performance. Arellano and Bond (1991) estimation methodology has been used to generate the estimates. A sample of 55 publicly listed firms operating in the Indian pharmaceutical industry for the period 2005-2014 has been considered.FindingsThe study finds moderate to heavy profit persistence in the Indian pharmaceutical industry. The study also finds that there exists a positive relationship between R&D intensity and performance for the Indian pharmaceutical Industry. The results hold even after considering two separate measures of profitability – return on assets and return on sales. The results also hint at a possible non-linear relationship between R&D intensity and profitability.Research limitations/implicationsThe results highlight positive profit persistence among pharmaceutical firms. The results also highlight the need for a sustained investment in R&D, as its benefits are driven in the long run. Thus, managers should devise proper policies R&D investments. Also, prospective entrants should properly study the existing entry barriers before deciding upon the mode and timing of entry.Originality/valueThe degree of profit persistence and the dynamic nature of relationship between R&D intensity and firm performance in the Indian pharmaceutical sector has not been studied. Thus, this paper fills this gap and also highlights the impact of certain firm- and industry-specific variables on profitability. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Asia Business Studies Emerald Publishing

Impact of R&D on profitability in the pharma sector: an empirical study from India

Jaisinghani, Dinesh
Journal of Asia Business Studies , Volume 10 (2): 17 – May 3, 2016
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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1558-7894
DOI
10.1108/JABS-03-2015-0031
Publisher site
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Abstract

PurposeThe purpose of the current paper is to examine the nature of profit persistence and to estimate the dynamic relationship between research and development (R&D) intensity and firm profitability in the Indian pharmaceutical industry.Design/methodology/approachA dynamic panel data model with generalized methods of moments (GMMs) technique has been deployed to estimate the relationship between R&D intensity and performance. Arellano and Bond (1991) estimation methodology has been used to generate the estimates. A sample of 55 publicly listed firms operating in the Indian pharmaceutical industry for the period 2005-2014 has been considered.FindingsThe study finds moderate to heavy profit persistence in the Indian pharmaceutical industry. The study also finds that there exists a positive relationship between R&D intensity and performance for the Indian pharmaceutical Industry. The results hold even after considering two separate measures of profitability – return on assets and return on sales. The results also hint at a possible non-linear relationship between R&D intensity and profitability.Research limitations/implicationsThe results highlight positive profit persistence among pharmaceutical firms. The results also highlight the need for a sustained investment in R&D, as its benefits are driven in the long run. Thus, managers should devise proper policies R&D investments. Also, prospective entrants should properly study the existing entry barriers before deciding upon the mode and timing of entry.Originality/valueThe degree of profit persistence and the dynamic nature of relationship between R&D intensity and firm performance in the Indian pharmaceutical sector has not been studied. Thus, this paper fills this gap and also highlights the impact of certain firm- and industry-specific variables on profitability.

Journal

Journal of Asia Business Studies – Emerald Publishing

Published: May 3, 2016

References

  • Should business groups be dismantled? The equilibrium costs of efficient internal capital markets
  • Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations
  • New evidence on the persistence of profit in Turkey with first and second generation panel unit root test
  • Bank-specific, industry-specific and macroeconomic determinants of bank profitability
  • Firm performance measures: temporal roadblocks to innovation?
  • Do foreigners facilitate information transmission in emerging markets?