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Is there a state-dependent optimal interval for firms’ R&D investment? Evidence from China

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  • Lixiong Yang
  • Liangyan Yao
  • Jianzu Wu

Abstract

This study sheds light on the existence of a time-varying and state-dependent optimal interval of research and development (R&D) investment in which firms can maximize the positive effect of R&D on their performance. We develop a panel kink threshold regression model with multiple covariate-dependent thresholds to capture a time-varying optimal interval of R&D investment. Based on the data of A-share listed firms in Shanghai and Shenzhen in China from 2012 to 2020, we provide empirical evidence supporting a state-dependent optimal interval of R&D investment, above or below which R&D is significantly negatively associated with performance. Specifically, the lower bound of the optimal interval (R&D barrier point) is counter-cyclical, while the upper bound of the interval (R&D saturation point) is pro-cyclical. Our study provides a new approach to understand the time-varying and state-dependent threshold effect in the R&D investment, hence contributing to the research and practice of determining the optimal R&D investment.

Suggested Citation

  • Lixiong Yang & Liangyan Yao & Jianzu Wu, 2025. "Is there a state-dependent optimal interval for firms’ R&D investment? Evidence from China," Applied Economics, Taylor & Francis Journals, vol. 57(17), pages 2074-2088, April.
    • Handle: RePEc:taf:applec:v:57:y:2025:i:17:p:2074-2088
    DOI: 10.1080/00036846.2024.2322576
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