Does Optimal R&D Intensity Level Exist in Chinese Defense Enterprises?

ABSTRACT

This paper investigates whether there exists an optimal level of research and development (R&D) intensity, at which defense enterprises are able to maximize their market performance. The Panel Threshold Regression Model was applied to probe the link between R&D intensity and sales growth for defense listed enterprises, in China. The empirical results indicate that the Law of Gibrat does not hold and, unlimited input in R&D, does not guarantee positive paybacks. This may lead to the assumption that there is an optimal R&D intensity level in Chinese defense enterprises. Due to the fact that the defense industry has broken entrance barriers and considering the introduction of social capital into R&D activities, managers and top management should set more specific guidelines and provisional benchmarks to ensure effective R&D resource allocation in order to achieve maximum performance.

KEYWORDS:

• R&D intensity
• law of Gibrat
• panel unit root
• panel threshold regression model

JEL CLASSIFICATION:

• C3
• G3

Disclosure statement

No potential conflict of interest was reported by the authors.