IMPACT OF RESEARCH & DEVELOPMENT ON THE PERFORMANCE OF PHARMACEUTICAL FIRMS: EVEDENCE FROM PAKISTAN
Abstract
The goal of this study is to investigate the financial performance of listed Pharmaceutical
companies in Pakistan impacted by different board characteristics. These board characteristics are discussed
through two theories: agency theory and resource dependency. The understudy characteristics include research
& development, independent board directors, leverage, CEO/Chair duality, board size and audit committee. The
paper used panel regression analysis on 11 firms from period of 2010 to 2019. It was found that investment in
research & development and audit committee have significant and positive impact on the performance of firms
as per agency theory. Whereas the characteristics like Independent directors, CEO duality, leverage and board
size had negative impact on the performance of the firms. The study helps to clarify the Board's performance
relationship and offers academic proof of existing and future governance changes for policy makers in Pakistan.
The conclusions add to the literature by presenting fresh and original perspectives into how the existing
knowledge of corporate governance and financial performance is applied within a developing context of
Pakistan.
Keywords
Full Text:
PDFReferences
Abbott, L. J., Parker, S., & Peters, G. F. (2002). Audit committee characteristics and financial misstatement: A
study of the efficacy of certain blue ribbon committee recommendations. Available at SSRN 319125.
Abor, J. (2005). The effect of capital structure on profitability: an empirical analysis of listed firms in Ghana.
The journal of risk finance.
Abubakar, B. A., Garba, T., Sokoto, A. A., & Maishanu, M. M. (2014). Corporate board gender diversity and
performance: Evidence from Nigerian stock exchange. An Unpublished PhD Thesis, Department of
Economics, Usmanu Danfodiyo University, Sokoto.
Afrifa, G. A., & Tauringana, V. (2015). Corporate governance and performance of UK listed small and medium
enterprises. Corporate Governance.
Ahmed, K., Hillier, J., & Tanusasmita, E. (2011). R&D profitability, intensity and market‐to‐book: evidence
from Australia. Accounting Research Journal.
Al-Mamun, A., Yasser, Q. R., Rahman, M. A., Wickramasinghe, A., & Nathan, T. M. (2014). Relationship
between audit committee characteristics, external auditors and economic value added (EVA) of public
listed firms in Malaysia. Corporate Ownership & Control, 12(1), 899-910.
Anagnostopoulou, S. C. (2008). R&D expenses and firm valuation: a literature review. International Journal of
Accounting & Information Management.
Arora, A., & Sharma, C. (2016). Corporate governance and firm performance in developing countries: evidence
from India. Corporate Governance.
Arslan, M., Zaman, R., Malik, R., & Mehmood, A. (2014). Impact of CEO duality and audit committee on firm
performance: A study of oil & gas listed firms of Pakistan. Research Journal of Finance and
Accounting, 5(17), 2222-1697.
Ayaydin, H., & Karaaslan, İ. (2014). THE EFFECT OF RESEARCH AND DEVELOPMENT INVESTMENT
ON FIRMS’FINANCIAL PERFORMANCE: EVIDENCE FROM MANUFACTURING FIRMS IN
TURKEY. Bilgi ekonomisi ve yönetimi dergisi, 9(1), 23-39.
Beasley, M. S., Carcello, J. V., Hermanson, D. R., & Lapides, P. D. (2000). Fraudulent financial reporting:
Consideration of industry traits and corporate governance mechanisms. Accounting horizons, 14(4),
-454.
Beasley, M. S., & Salterio, S. E. (2001). The relationship between board characteristics and voluntary
improvements in audit committee composition and experience. Contemporary Accounting Research,
(4), 539-570.
Bernstein, J. I., & Mamuneas, T. P. (2006). R&D depreciation, stocks, user costs and productivity growth for
US R&D intensive industries. Structural Change and Economic Dynamics, 17(1), 70-98.
Bhagat, S., & Bolton, B. (2008). Corporate governance and firm performance. Journal of corporate finance,
(3), 257-273.
Bhagat, S., & Bolton, B. (2013). Director ownership, governance, and performance. Journal of financial and
Quantitative Analysis, 48(1), 105-135.
Bouaziz, Z. (2016). The Impact of R&D Expenses on Firm Performance: Empirical Witness from the Bist
Technology Index. Journal of Business Theory and Practice, 4(1), 51-60.
Bouaziz, Z., & Triki, M. (2012). The impact of the presence of audit committees on the financial performance of
Tunisian companies. International Journal of Management & Business Studies, 2(4), 57-64.
Bukit, R. B., & Iskandar, T. M. (2009). Surplus free cash flow, earnings management and audit committee.
International Journal of Economics and Management, 3(1), 204-223.
Chen, Y., Nixon, M. R., Gupta, A., & Hoshower, L. (2010). Research productivity of accounting faculty: an
exploratory study. American Journal of Business Education (AJBE), 3(2), 101-115.
Chiang, S., Lee, P., & Anandarajan, A. (2012). The effect of R&D tax credit on innovation: A life cycle
analysis. Innovation, 14(4), 510-523.
Chung, A., & Park, S. (2016). Effects of firm uncertainty on association R&D expenditure and firm
performance: Evidence from Korea. Journal of Applied Business Research (JABR), 32(6), 1809-1824.
Coad, A., & Rao, R. (2008). Innovation and firm growth in high-tech sectors: A quantile regression approach.
Research policy, 37(4), 633-648.
Cohen, J. R., Gaynor, L. M., Krishnamoorthy, G., & Wright, A. M. (2011). The impact on auditor judgments of
CEO influence on audit committee independence. Auditing: A Journal of Practice & Theory, 30(4),
-147.
Conyon, M. (2009). Corporate Governance: Principles, Policies and Practices–By Bob Tricker. Corporate
Governance: An International Review, 17(3), 405-406.
Darko, J., Aribi, Z. A., & Uzonwanne, G. C. (2016). Corporate governance: the impact of director and board
structure, ownership structure and corporate control on the performance of listed companies on the
Ghana stock exchange. Corporate Governance.
Donaldson, L., & Davis, J. H. (1990). CEO governance and shareholder returns: Agency theory or stewardship
theory: Australian graduate School of Management, University of New South wales.
Duncan, K. (1996). Lawrence J Gitman Roger Juchau Ken Pearson & Michael Clemens (1995) Principles of
Managerial Finance in AustraliaAustralia: Harpers Educational. Journal of Management &
Organization, 2(2), 61-62.
Fama, E. (1983). Michael Jensen. Separation of Ownership and Control.
Fama, E. F., & French, K. R. (1998). Value versus growth: The international evidence. The journal of finance,
(6), 1975-1999.
Ferrer, R. C., & Banderlipe II, M. R. S. (2012). The influence of corporate board characteristics on firm
performance of publicly listed property companies in the Philippines. Academy of Accounting &
Financial Studies Journal, 16(4).
Fulgence, S. E. (2014). Corporate governance in Tanzania Corporate Governance (pp. 157-185): Springer.
Griliches, Z. (1981). Market value, R&D, and patents. Economics letters, 7(2), 183-187.
Guest, P. M. (2009). The impact of board size on firm performance: evidence from the UK. The European
Journal of Finance, 15(4), 385-404.
Hall, B. H., & Oriani, R. (2006). Does the market value R&D investment by European firms? Evidence from a
panel of manufacturing firms in France, Germany, and Italy. International Journal of Industrial
Organization, 24(5), 971-993.
Haniffa, R., & Hudaib, M. (2006). Corporate governance structure and performance of Malaysian listed
companies. Journal of Business Finance & Accounting, 33(7‐8), 1034-1062.
Hillman, A. J., & Dalziel, T. (2003). Boards of directors and firm performance: Integrating agency and resource
dependence perspectives. Academy of Management review, 28(3), 383-396.
Jackling, B., & Johl, S. (2009). Board structure and firm performance: Evidence from India's top companies.
Corporate Governance: An International Review, 17(4), 492-509.
Kiel, G. Nicholson. G.(2003). Board Composition and Corporate Performance: How the Australian experience
informs contrasting theories of corporate governance. Corporate Governance: An International
Review, 11(3), 189-205.
Kiel, G. C., & Nicholson, G. J. (2003). Board composition and corporate performance: How the Australian
experience informs contrasting theories of corporate governance. Corporate Governance: An
International Review, 11(3), 189-205.
Kim, K.-H., & Rasheed, A. A. (2014). Board heterogeneity, corporate diversification and firm performance.
Journal of Management Research, 14(2), 121.
Konak, F., & Kendirli, S. (2014). Impact of R&D Expenses on Firm Performance: Empirical Evidence from the
BIST Information Technology Index. International Journal of Education and Research, 2(3), 5-18.
Kumar, N., & Singh, J. (2012). Outside directors, corporate governance and firm performance: Empirical
evidence from India. Asian Journal of Finance & Accounting, 4(2), 39.
Kyereboah-Coleman, A., & Biekpe, N. (2006). The relationship between board size, board composition, CEO
duality and firm performance: Experience from Ghana. Corporate Ownership and Control, 4(2), 114-
Li, E. Y., Wang, Y., & Fan, W. (2014). R&D reporting methods and firm value: evidence from China. Chinese
Management Studies.
Lückerath-Rovers, M. (2020). Long-Term Value Creation in Corporate Governance: The Crucial Role for
Boards and Auditors. Available at SSRN 3714566.
Mahadeo, J. D., Soobaroyen, T., & Hanuman, V. O. (2012). Board composition and financial performance:
Uncovering the effects of diversity in an emerging economy. Journal of business ethics, 105(3), 375-
Malik, M. S., & Makhdoom, D. D. (2016). Does corporate governance beget firm performance in fortune global
companies? Corporate Governance.
Mangalam, C. K. S., & Govindasamy, P.(2010). Leverage-An Analysis and its Impact on Profitability with
Reference to Selected Cement Companies in India. European Journal of Economics, Finance and
Administrative Sciences, 27, 1450, 2275.
Mohammed, B. H., Flayyih, H. H., Mohammed, Y. N., & Abbood, H. Q. (2019). The effect of audit committee
characteristics and firm financial performance: An empirical study of listed companies in Iraq stock
exchange. Journal of Engineering and Applied Science, 14(4), 4919-4926.
Negash, M. (2020). Corporate governance and ownership structure: The case of Ethiopia. Ethiopian e-Journal
for Research and Innovation Foresight (Ee-JRIF), 5(1).
Ntim, S. (2016). Massification in Ghanaian higher education: Implications for pedagogical quality, equity
control and assessment. Int Res High Educ, 1(1), 160-169.
Nuryanah, S., & Islam, S. M. (2011). Corporate governance and performance: Evidence from an emerging
market. Management & Accounting Review (MAR), 10(1), 17-42.
Oh, S.-H. (2017). The Effects of R&D Expenses and patents on the Firm value. Management & Information
Systems Review, 36(3), 239-254.
Pfeffer, J., & Salancik, G. R. (2003). The external control of organizations: A resource dependence perspective:
Stanford University Press.
Phillips, P. A., & Sipahioglu, M. A. (2004). Performance implications of capital structure: evidence from quoted
UK organisations with hotel interests. The Service Industries Journal, 24(5), 31-51.
Poletti‐Hughes, J., & Ozkan, A. (2014). Ultimate controllers, ownership and the probability of insolvency in
financially distressed firms. Managerial and Decision Economics, 35(1), 36-50.
Pratheepkanth, P. (2011). Capital structure and financial performance: evidence from selected business
companies in Colombo stock exchange Sri Lanka. Researchers World, 2(2), 171.
Pratomo, W. A., & Ismail, A. G. (2006). Islamic bank performance and capital structure.
Rao, J., Yu, Y., & Cao, Y. (2013). The effect that R&D has on company performance: Comparative analysis
based on listed companies of technique intensive industry in China and Japan. International Journal of
Education and Research, 1(4), 1-8.
Robb, A. M., Fairlie, R. W., & Robinson, D. T. (2009). Financial capital injections among new black and white
business ventures: evidence from the Kauffman Firm Survey. unpublished paper, University of
California, Santa Cruz and Duke University.
Rodriguez-Fernandez, M. (2016). Social responsibility and financial performance: The role of good corporate
governance. BRQ Business Research Quarterly, 19(2), 137-151.
Ruland, W., & Zhou, P. (2005). Debt, diversification, and valuation. Review of Quantitative Finance and
Accounting, 25(3), 277-291.
Schimke, A., & Brenner, T. (2014). The role of R&D investments in highly R&D-based firms. Studies in
Economics and Finance.
Shleifer, A., & Vishny, R. (1997). A Study of Corporate Governance. The Journal of Finance, LII, 2.
Shrivastav, S. M., & Kalsie, A. (2016). The relationship between CEO duality and firm performance: An
analysis using panel data approach. IUP Journal of Corporate Governance, 15(2).
Simon–Oke, O., & Afolabi, B. (2011). Capital structure and industrial performance in Nigeria (1999-2007).
International Business and Management, 2(1), 100-106.
Tricker, R. (2012). The cultural dependence of corporate governance. Keeping good companies, 64(1), 27.
Tsamenyi, M., Enninful‐Adu, E., & Onumah, J. (2007). Disclosure and corporate governance in developing
countries: Evidence from Ghana. Managerial Auditing Journal.
Tukur, G., & Balkisu, A. (2014). Corporate board diversity and financial performance of insurance companies in
Nigeria: an application of panel data approach.
Udayasankar, K., Das, S. S., & Krishnamurti, C. (2005). INTEGRATING MULTIPLE THEORIES OF
CORPORATE GOVERNANCE: A MULTI-COUNTRY EMPIRICAL STUDY. Paper presented at the
Academy of Management Proceedings.
Ujunwa, A. (2012). Board characteristics and the financial performance of Nigerian quoted firms. Corporate
Governance: The international journal of business in society.
VanderPal, G. (2019). Exploring the Nexus Between Research and Development Expenditures and Corporate
Financial Performance: A Sectoral Analysis. American Journal of Management, 19(4), 133.
Wang, Y., Du, R., Koong, K. S., & Fan, W. (2017). Effects of R&D policy choice on accounting performance
and market value. R&D Management, 47(4), 545-556.
Wood, G., & Brewster, C. (2016). Corporate governance and human resource management. Annals of Corporate
Governance, 1(4), 249-319.
Yan, Z., & Yanni, W. (2017). The Stronger, the More Parochial? Evidence from Inter-Firm Alliance Innovation
Networks: From the Perspective of Resource and Structure Characteristics. Science of Science and
Management of S. & T.(5), 10.
Yasser, Q. R., Al Mamun, A., & Rodrigs, M. (2017). Impact of board structure on firm performance: evidence
from an emerging economy. Journal of Asia Business Studies.
Yermack, D. (1996). Higher market valuation of companies with a small board of directors. Journal of financial
economics, 40(2), 185-211.
Zhao, R. (2002). Relative value relevance of R&D reporting: An international comparison. Journal of
international financial management & accounting, 13(2), 153-174.
Zhu, Z., & Huang, F. (2012). The effect of R&D investment on firms’ financial performance: Evidence from the
Chinese listed IT firms.
Refbacks
- There are currently no refbacks.

This work is licensed under a Creative Commons Attribution 4.0 International License.

Sarhad Journal of Management Sciences by Sarhad University of Science & Information Technology is licensed under a Creative Commons Attribution 4.0 International License.
Based on a work at suit.edu.pk