The effect of R&D on financial performance: A study of Norwegian oilfield service companies

Abstract

Investments in research and development (R&D) may enhance competitive advantage and help sustain profitability over time. With access to a unique dataset covering 14 years of accounting data for Norwegian oilfield service companies, we examined whether R&D affects financial performance. Unlike previous research on this topic, we tested for within-industry segment-specific effects and used a broader range of financial performance measures.

Prevailing academic consensus suggest that R&D has a positive effect on financial performance. However, the findings of this paper suggest otherwise. We did not find evidence for a positive effect of R&D on subsequent financial performance. The analysis revealed several segment-specific effects of R&D, but these seem to be a result of bidirectional relationships rather than causality. If any, R&D seems to have a negative impact on asset turnover. Instead, evidence is more robust for a direct relationship between profit margins and subsequent investment in R&D.