R&D expenditure and managerial ownership: evidence from firms of high-vs-low R&D intensity

Abstract

Purpose

Corporate managers spend on research and development (R&D) for reasons of growth and survival. However, they may be less willing to invest in R&D because of its long-term horizon, high failure rate and uncertain outcomes. This study aims to explore the extent to which managerial ownership influences R&D expenditure decisions.

Design/methodology/approach

Apart from the linear regression models, this study uses a semi-parametric quantile regression analysis for a sample of German non-financial firms throughout 2009–2018.

Findings

This study finds a nonmonotonic sensitivity of R&D spending to the level of managerial ownership over various quantiles of R&D distribution. That is, managerial ownership increases the expenditure on R&D at low R&D intensity firms. However, it decreases the expenditure on R&D at high R&D intensity firms. These results suggest the presence of a maximum level of R&D expenditure, after which owner-managers would be unwilling to spend on R&D.

Practical implications

The results confirm the importance of corporate ownership structure for firm R&D and innovation activities. It provides an implication for corporate policymakers to reform the corporate ownership structures to encourage corporate managers and owners to invest in R&D projects.

Originality/value

This study offers two distinct contributions study. First, it provides the first German shred of evidence on the nonlinear relationship between managerial ownership and R&D expenditure decisions by distinguishing between high and low R&D intensity firms. Second, unlike prior research, it uses a semi-parametric quantile regression analysis. This method is more efficient than least-squares estimators and produces robust estimators to heteroscedasticity of the residuals.

Citation

Hassanein, A., Al-Khasawneh, J.A. and Elzahar, H. (2023), "R&D expenditure and managerial ownership: evidence from firms of high-vs-low R&D intensity", Journal of Financial Reporting and Accounting, Vol. 21 No. 3, pp. 654-672. https://doi.org/10.1108/JFRA-07-2021-0205