Negative Relationship Between R&D and Performance, Essay Example

My aspiration is to pursue a PhD program in Finance become a leader in the field of research and development. I have been working towards achievement of this goal and as a result, I analyzed the relationship between research and development and performance and despite my expectations of arriving at a positive relationship, I was astonished to find that negative relationship exists.

Most of the researches conducted have indicated a positive relationship between investment in research and development and the performance of the firm in the marketplace. However, this is not applicable in the situation where time lag is considered in evaluating the relationship between research and development and the performance of the firm, in which case, this relationship becomes negative. In addition, a non linear correlation between research and development and the firm’s market value is verifiable.

Some empirical results that support this argument have been documented after investigations. The intensity of research and development is associated with substantial negative effects on the productivity as well as the profitability of a firm. Any firm will require substantial time for adjustment after investing in research and development to allow for the reduction of the costs of production associated with the investments in research and development and then the firm generates profits. Consequently, the results may not be visible during the year of investment, but some time lag is required for the realization of an increase in the performance of the firm.

Most researches have however established a positive relationship between research and development and the performance of the firm during their research; they however have ignored a number of vital factors that should be considered. On assumption of a linear correlation, then R&D is assumed to result to persistent increase in the profits of the firm. On the contrary, the assumption of a non linear relationship in this scenario implies constant loss in the firm. It is prudent that this is taken as non-rational since increments in investments for R&D is consequential to an increase in the total cost associated with R&D in the firm. Additionally, continuous investments in R&D are hindered by limitations associated with the capabilities of the company management.

According to the facts established above, the initial stages of research and development are associated with positive impacts on the performance of the company. On realization of the optimal point however, continuous investment in research and development will ultimately result to a negative relationship between research and development and the performance of the organization.

The costs of production assume an incremental trend since development of innovative products requires some time for the results to be apparent. This is also attributed to a commotion associated with introduction of innovative methods in the process of production during the period of adjustment. Therefore, some time is required to facilitate the firm to assimilate inevitable changes and thus cut down the cost of production so that enhancements in the performance of the firm can be realized. A learning period is also inevitable during the time of methods innovation in the organization. This therefore explains the negative relationship between R&D and the performance of the firm.

During my PhD program in Finance, I therefore intend to engage in further research in the effect of the time lag during research and development and its relationship with the performance of the firm. Additional research is also needed in establishment of the calculations of expenses associated with investments in R&D and their association with the profits of the firm.