Analysis on Time-Lag Effect of Research and Development Investment in the Pharmaceutical Industry in Korea

OBJECTIVES The aim of this study is to analyze the influence of the research and development (R&D) investment of pharmaceutical companies on enterprise value. METHODS The period of the empirical analysis is from 2000 to 2012, considering the period after the influence of the financial crisis. Financial statements and comments in general and internal transactions were extracted from TS-2000 of the Korea Listed Company Association, and data related to stock price were extracted from KISVALUE-III of National Information and Credit Evaluation Information Service Co., Ltd. STATA 12.0 was used as the statistical package for panel analysis. RESULTS In the pharmaceutical firms, the influence of the R&D intensity with regard to Tobin's q was found to be positive. However, only the R&D expenditure intensities of previous years 2 and 5 (t-2 and t-5, respectively) were statistically significant (p < 0.1), whereas those of previous years 1, 3, and 4 years (t-1, t-3, and t-4, respectively) were not statistically significant. CONCLUSION R&D investment not only affects the enterprise value but is also evaluated as an investment activity that raises the long-term enterprise value. The research findings will serve as valuable data to understand the enterprise value of the Korea pharmaceutical industry and to strengthen reform measures. Not only should new drug development be made, but also investment and support should be provided according to the specific factors suitable to improve the competitiveness of each company, such as generic, incrementally modified drugs, and biosimilar products.