R&D funding, Firms’ Investment Decisions and Profitability: When Proximity and Law matter

Abstract

In today's competitive landscape, innovation efforts driven by R&D investments have become a critical factor for firms to sustain growth and maintain a competitive edge. In Vietnam, businesses are increasingly leveraging R&D to drive innovation, supported by the establishment of high technology centers and favorable government policies that encourage enterprise-led initiatives. However, there remains a lack of empirical research on the impact of geographical proximity to high technology centers and policies on the effectiveness of R&D funding. As R&D funds are a key motivator for innovation and competitive advantage, understanding how geographical factors affect these investments becomes essential, especially for businesses in emerging economies like Vietnam. Drawing upon a sample of Vietnamese listed firms from 2009 - 2022, panel data regression models are used to investigate the impact of geographical distance and the 2017 Technology Transfer Law (which came into effect on July 1, 2018) on firm profitability and intangible assets investment. The findings reveal that geographical distance to high technology centers shows a negative relationship of R&D funding on the profitability, suggesting that the further a firm’s geographical distance to these high technology centers, the less effective its R&D funding is in enhancing profitability. Proximity to high technology centers appears to influence intangible assets investment, encouraging higher allocations in these assets for firms located further to these centers compared to those located closer. In addition, the heterogeneity analysis shows that the 2017 Technology Transfer Law, R&D, and distance significantly influence intangible asset investment, with distinct impacts across IT, public utilities, consumer services, and FMCG industries. These results reveal the strategic importance of high technology centers, as they play a vital role 3 in supporting R&D fund allocation and shaping firm-level investment decisions.