Exploring the synergy between R&D and advertising and firm performance: a neural network approach

Abstract

PurposeThis paper explores the nonlinear interactions of research and development (R&D) and advertising and their synergistic effect on firm performance using Tobin's Q. This study also aims to investigate differential synergy patterns under varying levels of exports with a precision impact on performance.Design/methodology/approachUnlike a conventional statistical approach, this study uniquely presents a neural network approach to explore the dynamic interplay of strategic factors. A multilayer perceptron neural network (MPNN) is designed to capture complex interaction patterns through a predictive analytic process.FindingsThis study finds that the impact of R&D and advertising is positive, with a greater effect on high-export firms. Moreover, the experiment results show that the synergy of R&D and advertising goes beyond the formatted positive/negative frame and actually has a reinforcing effect.Practical implicationsThis study not only conveys the significant nexus of R&D and advertising for firm performance but also provides industry managers' practical means to assess the joint effect of R&D and advertising on firm performance. The proposed analytic mechanism in particular provides pragmatic decision support to managers in harmonizing their R&D and advertising efforts for a foreseeable impact.Originality/valueThis paper presents an innovative analytic process using the MPNN to explore the synergy between R&D and advertising. In addition to offering new perspectives on R&D and advertising, this study presents pragmatic implications for managing those strategic resources to meet performance targets.

Complex interplay of R&D, advertising and exports in USA manufacturing firms: differential effects of capabilities

“…In contrast to the research that suggests that R&D and advertising have conflicting effects, another stream of research has reported that there is a complementary relationship in the joint employment of R&D and advertising (Burciu et al, 2020;Kwon et al, 2022b;Peng et al, 2018). For example, Peng et al (2018), in their investigation of the synergistic effect of the simultaneous deployment of R&D and advertising, use a sample of 317 firms across 27 industry sectors and find that R&D and advertising have a positive interaction, with a significant interaction effect, thereby further supporting the contention that the proper allocation of joint resources has a positive influence on value creation.…”

“…From a methodological perspective, efficiency analysis using an optimization method such as data envelopment analysis (DEA) (Ayabakan et al, 2017;Yu et al, 2018) has been widely used; BIJ however, a lack of predictive power and sensitivity to outliers have been noted as the method's shortcomings. To address such drawbacks, researchers have recently deployed nonparametric machine learning techniques such as MLP (Kwon et al, 2018(Kwon et al, , 2022bMolinos-Senante and Maziotis, 2022). In this pioneering study, we follow Dutta et al's (2005) conceptualization of firm capabilities and adopt the approach taken by Kwon et al (2018Kwon et al ( , 2022a in operationalizing capabilities and subsequent segmentations.…”

“…For example, Peng et al (2018), in their investigation of the synergistic effect of the simultaneous deployment of R&D and advertising, use a sample of 317 firms across 27 industry sectors and find that R&D and advertising have a positive interaction, with a significant interaction effect, thereby further supporting the contention that the proper allocation of joint resources has a positive influence on value creation. More recently, Kwon et al (2022b) have argued that advertising and R&D are mutually reinforcing, with R&D resulting in innovation-driven value creation and advertising enabling value capture. Specifically, R&D creates value by enhancing operational processes and developing new products, and advertising captures value by creating new demand and aligning customers with products.…”

“…However, while there has been a plethora of research on individual effects and statistical significance, there is still a lack of studies that explore the synergistic interactions between R&D and Interplay of R&D, advertising and exports advertising and their impact patterns. Indeed, the dynamic impact patterns of R&D and advertising have hardly been investigated, and the conditional effects of capabilities are also largely unexplored (Kwon et al, 2022b;Lee and Kwon, 2021;Makrini, 2017). Hence, there remains a research void, thus the need to shift attention to the holistic effect of these decision variables and their differential impact patterns beyond statistical significance (Freixanet et al, 2020).…”

The Moderating Effect of Liquidity on the Relationship between Expenditure and Financial Performance of SMEs in Indonesia

“…In the study by (Airout et al, 2023), there is an influence of advertising expenditure on financial performance. (Kwon et al, 2022) discovered that advertising generates promising aspects for improving innovation and marketing performance, which directly impacts financial performance. Therefore, the following hypothesis is proposed:…”