R&D intensity and firms dividend policy: evidence from BRICS countries.

Abstract

Purpose: Given the importance of both research and development (R&D) investments and dividend policy in the growth of firms, this paper examines the moderating effects of investor protection and other country-level governance mechanisms on the relationship between R&D investments and dividend payments in the firms from Brazil, Russia, India, China and South Africa (BRICS countries). Design/methodology/approach: This empirical study uses a sample of 22,073 firm year observations from the BRICS countries over a period of 2008–2020 and employs both ordinary least squared (OLS) and system generalized method of moments (GMM) estimation methods. The GMM estimation controls for unobservable heterogeneity and endogeneity and reduces estimation bias. Findings: The findings indicate that although R&D intensity is negatively related with the cash dividend payments, with the interaction of investor protection and other country-level mechanisms the relationship between R&D intensity and dividend payments becomes positive. The results further show that investor protection has stronger impact on the relationship between R&D intensity and firm cash dividend payments than other selected country-level governance factors. Practical implications: The research findings should encourage the policy makers in BRICS countries to strengthen investor protection and enhance quality of their institutions to make a right balance between retaining their growth potential and maintaining the value of the firms. Originality/value: This is the first study to provide evidence of the moderating effects of investor protection and other country-level governance mechanisms on the relationship between R&D investments and dividend payments using the data from BRICS countries.