The Wealth Effect of Increase in Research & Development Expenditure Announcements of Companies Listed on the Kuala Lumpur Stock Exchange

Abstract

Intoday ’s competitive economic environment, the long-term survival of firms depends on their ability to create a competitive advantage through the development of new products, improvement of existing _ products and/or new methods of production. This is pertinent to firms in high-technology industries where the rate of technological obsolescence is high relative to other industries. The creation and sustenance of competitive advantage requires firms to invest heavily (sometimes with the use of public funds through governments) in research and development activities (R & D). The economic rationale for such investment is to increase factor productivity and quality, therefore increase living standards and confer general benefits on society. On the macro level, there is evidence which suggest (OECD, 1997) that the invention and initial exploitation of new products and processes is of less value compared tothe rapid and widespread diffusion of such technology to sustain a steady economic growth. Firms in the R&D intensive sectors (such as computer equipment, aerospace and pharmaceuticals) usually pursue technological development through purchasing R&D intensive capital equipment rather than directly financing research in the laboratories. A good example is Japan which for the past few decades increased its technological sophistication through greater use of high-tech equipment rather than heavy direct spending on R&D.