THE NONLINEAR IMPACT OF RESEARCH AND DEVELOPMENT INVESTMENTS ON FIRM PERFORMANCE: A SIGMOID (S) CURVE APPROACH IN G20 COUNTRIES

Abstract

The interaction between research and development (R&D) investments and firm performance has
been extensively studied in the academic literature. However, these studies have produced different
findings by proposing various models to explain the relationship between R&D and firm
performance. The inconsistency in findings can be partly attributed to limitations in the use of
traditional linear modeling methods that do not fully capture the complex dynamics of this
relationship. Using data on 31,205 firms and 434,016 observations in G20 countries over the period
2000-2022, this paper considers the Sigmoid (S) curve model, which aims to reconcile the
differences in the literature and provide a more comprehensive view of the R&D performance
relationship. The findings reveal a non-linear relationship between R&D intensity and firm
performance and the validity of the S-curve model. Specifically, the R&D-performance relationship
shows a negative slope at low levels of R&D investment, a positive slope at medium levels, and a
negative slope again at high levels. These results suggest that the impact of R&D investments on
firm performance varies depending on the level of investment. Moreover, the study reveals that this
3-stage S-curve relationship is consistent for firms with low firm size and low leverage, and that
such firms are particularly affected by an increase in R&D investment. Finally, the findings show
that this relationship holds both between developed and developing countries and between countries
following Anglo-Saxon and Continental European law. However, this relationship is more
pronounced in Anglo-Saxon and developing countries than in Continental European and developed
countries.