The Impact of Business Life Cycle and Performance Discrepancy on R&D Expenditures-Evidence from Taiwan

Abstract

The purpose of this study is to examine the impact of business life cycle and performance discrepancy on Research and Development (R&D) expenditure. Specifically, we argue that managers of firms in different stages of business life cycle make R&D decisions according to their perception of performance discrepancy. We investigate three stages of business life cycle: growth stage, maturity stage, and stagnant stage. Based on a sample of firms listed in Taiwan Stock Exchange, we find that managers of firms in the growth stage tend to increase R&D expenditure when they experience positive performance discrepancy. This implies that growing firms’ slack-resource-driven behavior is leads to the increase in R&D expenditure. There is some evidence that managers of firms in the mature stage tend to increase R&D spending when they experience negative performance discrepancy, indicate that negative performance discrepancy triggers the problem-driven search behavior of managers of mature firms.