RESEARCH AND DEVELOPMENT INVESTMENTS, INNOVATIVE OUTPUT AND FINANCIAL PERFORMANCE OF LISTED CONSUMER GOODS FIRMS IN NIGERIA

Abstract

As it is generally expected that research and development (R&D) spending should translate into higher financial returns, many listed consumer goods firms in Nigeria continue to record R&D outlays that do not correspond to improved profitability. This raises doubts about whether R&D investment can singlehandedly drive financial performance in the sector. This study addresses this problem by examining how research and development investment, research and development intensity, and innovative output separately affect the financial performance of listed consumer goods firms in Nigeria between 2013 and 2023. Innovation has been believed to improve financial success, particularly in emerging economies where it is required that firms navigate rapidly changing consumer preferences and intense competition. Innovation is widely recognized as a critical driver of financial success, particularly in emerging economies where firms must navigate rapidly changing consumer preferences and intense competition. Data were hand-collected from the audited annual reports of fourteen (14) purposively selected listed consumer goods firms in Nigeria, yielding 154 firm-year observations. Both descriptive statistics and a panel data approach were employed; the Hausman test favoured a random-effects specification, but because the data exhibited heteroskedasticity and serial correlation, the model was estimated using robust least squares regression. The findings show that though R&D expenditure relative to sales at β = 0.1419, p = 0.5962 and total R&D investment at β = 0.0050, p = 0.2339 have a positive effect on financial performance, yet they are statistically insignificant. This indicates that increasing research and development expenditure, whether in absolute terms or relative to sales, does not on its own translate into improved financial outcomes. Meanwhile, innovative output is statistically significant (β = 1.0271, p = 0.0000) with positive effect on financial performance. The model also explains about 73 percent of the variation in financial performance (R² = 0.7286). The implication of this is that how much is incurred on R&D expenditure does not drive financial returns, innovation does. The findings suggest that firms should adopt a strategic approach that focuses R&D investment on innovations. Financial returns improve when R&D spending focuses on marketable innovations.