Firm Growth and R&D in the Korean Pharmaceutical Industry

Abstract

We explore the impact of research and development (R&D) on sales growth rate with firm-specific factors under the Korean pharmaceutical industry structure using listed Korea pharmaceutical company data from 2007 to 2018 with the quantile regression technique. We find that R&D intensity has a positive effect on firm growth rate while R&D scale a negative effect on the firm growth rate at the upper quantile, whereas the result is opposite at the lower quantile. Firm size has a mixed relationship with sales growth at the upper quantile, thus Gibrat's law is rejected in the Korean pharmaceutical industry. Firm age has a negative relationship with the sales growth rate at the upper quantile, which shows the consistent result with previous research that young firms grow faster. Patent persistence has a negative relationship with sales growth at the upper quantile, while a positive effect at the lower quantile. We show that young firms and firms with high R&D intensity contribute to the high growth rate, while the relationship is not clear at the lower quantile. Therefore, policy implication in this research is that the government should pay attention to encouraging and supporting R&D investment activities and small firms as well as consider ways to enhance patent rights.