The Impact of R&D Innovation on Firm Performance

Against the backdrop of the digital transformation of the global economy and the deep integration of the scientific and technological revolution, R&D and innovation have become the core driving force for national competitiveness and the sustainable development of enterprises. According to the World Intellectual Property Organization (WIPO), China's R&D investment intensity has maintained an average annual growth rate of 9.1% for seven consecutive years, and the R&D expenditure of the whole society will exceed 3.09 trillion yuan in 2022, of which high-tech enterprises will contribute more than 70%. As the main force of the innovation system, the number of high-tech enterprises in China has surged from 79,000 in 2015 to 450,000 in 2023, and the proportion of total industrial output value in GDP has jumped to 21.5%. However, high R&D investment has not fully translated into business performance: 34.7% of high-tech enterprises have an R&D intensity of more than 5% in 2022, but their average sales margin (6.2%) is only 1.8 percentage points higher than that of non-high-tech enterprises, and 24% of them are facing cash-flow risks due to long innovation cycles. Data from the Shanghai and Shenzhen Stock Exchanges show that while R&D expenses in the information technology industry will grow at an average annual rate of 19.4% from 2018-2022, the median return on equity (ROE) has fallen from 8.7% to 6.3%, highlighting the complexity of the mechanism for transforming R&D performance. China's unique institutional environment further shapes the differentiated innovation ecosystem: on the one hand, the government reduces the cost of innovation through tax incentives (420 billion yuan of tax exemptions in 2022) and special subsidies (increasing by 15.3% annually); on the other hand, the increase in intellectual property infringement cases (11.2% year-on-year in 2023) and imperfections in the valuation system of the capital market constrain the efficiency of results transformation. Based on this, this study utilizes unbalanced panel data of 9,754 listed high-tech enterprises from 2014-2024 to empirically test the mechanism of R&D investment on firm performance and examine the moderating effects of gearing ratio, firm size and total asset turnover ratio. The research results can not only fill the theoretical gap of innovation performance research in the emerging market context, but also provide empirical evidence for enterprises to optimize R&D decisions and the government to improve innovation policies.