DETERMINANTS OF R&D INVESTMENT IN PHARMACEUTICAL AND BIOTECHNOLOGY COMPANIES
DETERMINANTS OF R&D INVESTMENT IN PHARMACEUTICAL AND BIOTECHNOLOGY COMPANIES

Author(s): Mihaela Curea, Marilena Mironiuc
Subject(s): Economy
Published by: Editura Universităţii »Alexandru Ioan Cuza« din Iaşi
Keywords: R&D expenditures; R&D investment; innovation; pharmaceutical industry; biotechnology;
Summary/Abstract: Corporate research and development (R&D) investment is typically portrayed as the main engine for long-term economic growth. In this context, it comes as no surprise that academic interest in the driving factors of R&D is on the rise. However, the results remain unclear. This paper empirically scrutinizes some of the potential determinants of R&D behaviour in European pharmaceutical and biotechnology companies. We focus on the internal factors that may shape R&D decisions, namely firm size, profitability, leverage and current loss. In addition, we seek to disentangle the puzzling relation between foreign direct investment (FDI) inflows and R&D investment. The analysis is based on a longitudinal dataset comprising European listed firms over a time span of 10 years (2010- 2019). Secondary data concerning FDI and firm-level variables were extracted from the World Development Indicators (WDI) database and Refinitiv Eikon database. We employ a fixed effects model (FEM) where R&D investment is seen as a function of several firm- specific factors and FDI. Collectively, our findings indicate that firm size, leverage, current loss and profitability affect the R&D decision of pharmaceutical and biotechnology companies. In line with our expectations, profitability and leverage are negatively associated with R&D expenditures. Evidence also shows that large companies and loss companies are more prone to undertake R&D activities as such projects are risky, and their impact is time-lagged. Regarding FDI, we fail to provide a clear picture since no significant influence on R&D is found. Various robustness checks lend further support to our findings. As pharmaceutical and biotechnology firms are traditionally replete with R&D, our study can complement the extant literature and deepen our understanding of the factors that are likely to drive R&D. Therefore, this research could be a useful aid for decision-makers at both national and company level.

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