Dividend payouts and firm-level R&D investment: International evidence

Abstract

Existing literature has extensively examined the determinants of firms’ research and development (R&D) investment and the effects of financialisation on physical capital formation. By contrast, evidence on how financialisation affects R&D investment is scarce, concentrated in a few country case studies, and mixed in its findings. We contribute to this literature by presenting cross-national evidence that dividend payouts are negatively correlated with firm-level R&D investment, using a large sample of 6,787 publicly listed non-financial firms from 72 countries over 2010–2018. This pattern is consistent with the argument that shareholder-value-oriented corporate governance reduces R&D investment. In addition, our comparative capitalism analysis shows that the trade-off is strongest in liberal market economies, average in emerging economies, weaker in mixed market economies, and essentially absent in coordinated market economies. These findings suggest the need for corporate governance and financial regimes that do not systematically favour high dividend payouts over long-term R&D investment.