The Effect of Research and Development on the Financial Performance of Manufacturing Companies Listed at the Nairobi Securities Exchange

Abstract

The growth of manufacturing firms is based on the exploitation of innovative products and services thus forcing them to strongly invest in research and development (R&D). If the R&D expenditures announce the strategic positioning of firms, they can also significantly decrease the financial performances in terms of net income, return and risk. To remain competitive, organizations should aim at uniqueness and superiority in all spheres of their operations such as technology, work procedures, supply chain, approaches to various management functions. This study was undertaken with the aim of assessing the effect of research and development on the financial performance of the manufacturing companies listed at the NSE. It employed a descriptive survey design studying all the 17 manufacturing firms listed on the Nairobi Stock Exchange. Secondary data was used in the study that was collected from the annual published financial statements of the listed manufacturing firms for the years 2010 to 2014. Regression and correlation analysis techniques were employed to present the relationship between the variables. The test for the significance was done at the 5% level of significance. The study results indicated that there is a strong positive correlation between the financial performance and R&D in the manufacturing companies. A strong correlation of 0.833 was found between financial performance and leverage of the manufacturing companies; 0.901 between financial performance and liquidity of the manufacturing companies and 0.847 for the correlation between financial performance of manufacturing firms and the size of the firms. A positive relationship was also found between R&D intensity, leverage, size of manufacturing firms, and liquidity and the firms’ financial performance of the manufacturing firms. The study therefore recommended that there is need for the manufacturing firms to invest more in research and development strategies towards achievement of organizational goals as well that there is need for the sector to ensure that all the firms are governed by the production policies and have strategies for R&D for them to keep in phase with consumer requirement towards achievement of performance goals.