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Examining the Performance Implications of Innovation Investment in Core Industries of the Digital Economy: A Threshold Analysis of Excess Cash Holding Level

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  • Huaguo Li

    (Xi’an University of Technology
    North China University of Water Resources and Electric Power)

  • Wenxiu Hu

    (Xi’an University of Technology)

Abstract

Innovation and quality improvement in China’s main sectors drive its digital economy. This study examines the economic effects of innovation investment in certain businesses, specifically cash and R&D spending increases. We use the panel threshold regression model on 478 listed businesses in digital economy key industries from 2013 to 2022. Our study uses R&D investment intensity and excess cash holdings as threshold factors and found interesting results. As the threshold variable, R&D investment intensity has a three-threshold effect, demonstrating a W-shaped association with firm performance. The dynamics of R&D investment change from negative to positive and vice versa, highlighting its complexity. Second, using excess cash holding levels as the threshold variable shows a range that positively affects R&D intensity and current-period enterprise performance, with a greater effect on future performance. However, much currency dampens this link. Regional and industry-specific tests reveal threshold effect variations. As it progresses, the study matches knowledge economy demands. This research illuminates the complex relationship between R&D investment, excess cash holdings, and firm success in China’s digital economy, aiding strategic decision-making. The recommended enterprise and government interventions support innovation and sustainable development in the digital core industries in a knowledge-driven economy.

Suggested Citation

  • Huaguo Li & Wenxiu Hu, 2024. "Examining the Performance Implications of Innovation Investment in Core Industries of the Digital Economy: A Threshold Analysis of Excess Cash Holding Level," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(4), pages 18739-18769, December.
    • Handle: RePEc:spr:jknowl:v:15:y:2024:i:4:d:10.1007_s13132-024-01871-7
    DOI: 10.1007/s13132-024-01871-7
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