THE IMPACT OF RESEARCH AND DEVELOPMENT COSTS ON THE OPERATIONAL PROFITS OF JORDANIAN COMPANIES
Abstract
Research and development drive competitive advantage but requires substantial investments that can constrain profitability. This study examines the impact of R&D costs on the operating profits of Jordanian pharmaceutical companies listed in ASE from 2015-2022. Financial data across five major players is analysed using multiple regression techniques using EViews. The results reveal a statistically significant positive relationship whereby a 1% increase in R&D spending as a proportion of revenue enhances the profit margin by 0.17%. However, when controlled for company size, the R&D impact becomes insignificant, indicating scale-based barriers. But incorporating age and sales growth factors restores significance, suggesting life cycle contingent effects. However, R&D displays a contingent profitable influence depending on organizational context. Thus, for further research can support optimal resource allocation towards differentiated research initiatives across market segments. Quantifying input-output mechanisms and delineating cost thresholds promises to nurture the pharmaceutical innovation ecosystem. This paper offers specific insights for pharmaceutical leaders to optimize innovation planning based on companyspecific factors to elevate financial sustainability. This paper highlights the need for evidence-based allocation decisions catering to life cycle stage, growth objectives and market positioning. Based on the study's findings, companies should create collaborative partnerships with universities and research institutions. The collaborative partnerships will help them cover service gaps, reduce costs, and, most importantly, reduce the uncertainties that come with innovation. Managers should consider the size, age, and growth levels of the firm while developing research and development strategies. On the other hand , policymakers should pay special attention to innovative strategies, especially in the pharmaceutical industry. This should be done by introducing appropriate rewards, financing, and initiatives to support R&D.