Managerial optimism and R&D investment decision: evidence from Singapore listed firms

Then, Siew Siew (2019) Managerial optimism and R&D investment decision: evidence from Singapore listed firms. [Final Year Project Report] (Unpublished)

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Abstract

This study examines the significant relationship between managerial optimism and R&D investment decision for a sample of technology firms in Singapore market over 2008 to 2017. Optimism is managerial characteristics that will be used in this study. In the R&D investment, managers are optimistic invest more heavily in R&D. The greater innovative output for given R&D input achieved by optimism manager does not necessarily translate into higher firm value. The problem statement of this study is an effect contributed by managerial optimism is that will influence the investment decision on R&D investment decision as well as performance of firm. The overall idea will be first explained by the agency theory, for describing the the popular agency relationship, which is the principal as the representative while the agent performs the work in R&D investment decision. Next, prospect theory is theory under situations of risk-taking behaviour. For upper echelons theory, is about performance of firm would be impacted by decision and choices of manager. The proxies to measure managerial optimism are dividend payout ratio (OP 1) and over-investment (OP2). R&D investment decision is determined by R&D investment and firm performance. To determine R&D investment, the firm characteristics variables are firm size, tangibility, return on asset, and leverage. To determine firm performance, the firm characteristics are firm size, tangibility, R&D, and leverage. Besides, various diagnostic tests are conducted, such as autocorrelation test, heteroscedasticity test and multicollinearity test. Breusch Pagan Lagrangian Multiplier (BPLM) test and Hausman test are conducted to determine the model effects as well. This study indicates that managerial optimism (OP2) is negatively associated with R&D investment and firm performance in both full model 2 and full model 4. Besides, this study finds that managerial optimism (OP 1) is significant and negative relationship with firm performance in full model 3. Firm characteristics have significant and positive relationship with R&D investment decision according to the baseline models are conducted. Robustness check was done and the results are aligned where there is a significant relationship between managerial optimism and R&D investment decision. The findings of this study is managerial optimism will have less R&D investment decision.

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