An Empirical Research On The Relationship Between R&D Expenditure And Corporation Performance

Enterprises are for-profit organizations with purchasing profit. In the period of knowledge economy, the development of technology has become the main driver of economic growth. In this context, every firm should try to increase its resources and try to master the core technology to enhance technological innovation so that it can take the advantage of competition to make a long-term development. R&D investment must be the base of technological innovation capabilities. It is a key component of the innovation chain. There is a close relationship between the size of a firm's R&D investment and the level of technological development and potential growth. The size of R&D investment reflects the technological level and innovation capability and potential economic growth of the enterprise partly. The largest characteristic of information technology companies is technological innovation which is the core point. The business development depends on increased margin profit mainly which is brought by science and technology. Therefore, the firm performance of R&D investment affects its development directly. In China, the firm's overall ability of independent innovation is far away from abroad, which is related to the firm's degree of attention to R&D investment.In this paper we used the method of empirical research. The study period is from January 1, 2007 to December 31,2010 only. We selected all the listed companies of information technology industry (G) that joined the Shanghai and Shenzhen's share market before December 31,2006 and still operated until December 31,2010 in A share market for the study. We used two kinds of mathematical models which are multiple linear regression model and modified Cobb-Douglas (Cobb-Douglas) production function model. Meanwhile, we selected both absolute indicators and relative indicators to analyze the relationship between R&D investment and firm performance. The results were confirmed with each other which make the conclusion more convincing and reliable.The results of this study show that:China's information technology enterprises have paid more attention to R&D capability and the size of R&D investment is steadily growing. However, there is a large gap between these enterprises and they are still not strong in the global competitiveness of this industry. Overall, firstly, there is a significant positive correlation between the R&D investment and corporate profitability of China's information technology enterprises. The increase of R&D investment promoted the increase of profitability. Secondly, there is also a positive correlation between R&D investment and business development capabilities, but the relevant relationship is not obvious. Thirdly, there is an apparent positive correlation between the number of R&D personnel and corporate profitability, but the correlation between the number of R&D personnel and the development ability. Fourthly, R&D investment effect is lagging behind. The effect to the second year is more obvious than the first year and the effect to the third year is less obvious than the first year. Two years later, the effect is gradually weakened. In addition, the study also found that the R&D investment has a cumulative effect.The results of this study provides a theoretical and empirical basis to enhance and pay more attention to the R&D investment not only for China's information technology industry listed companies but also for the non-listed companies of this industry and other industry companies. Meanwhile, it is good for the comprehensive promotion of China's enterprises in the global competition.