R&D, advertising and firms' financial performance in South Korea: Does firm size matter?

Abstract

Advertising and research and development (R&D) are two engines for firms to obtain competitiveness and improve profits. This study develops a system of equations to investigate the overall relationships among R & D, advertising and financial performance across firm sizes. Data from Korean listed firms have been used during 2012-2016. First, our results show that R & D and advertising are complementary in South Korea. Second, for large firms, advertising is positively and significantly associated with financial performance, and the R & D expenditure has no significant influence. Finally, R & D and advertising expenditures have a negative impact on the financial performance of small firms. An additional analysis is conducted to examine the duration of R & D and advertising. Our results from Korean listed firms contain important implications for academia as well as practitioners.