Management Decision

Influence of basic research investment on corporate performance: Exploring the

moderating effect of human capital structure
Malin Song, Xiongfeng Pan, Xianyou Pan, Zhiming Jiao,
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Malin Song, Xiongfeng Pan, Xianyou Pan, Zhiming Jiao, (2018) "Influence of basic research
investment on corporate performance: Exploring the moderating effect of human capital structure",
Management Decision, https://doi.org/10.1108/MD-06-2018-0708
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Influence of
Influence of basic research basic research
investment on corporate investment

performance
Exploring the moderating effect of human
capital structure Received 30 June 2018
Revised 5 September 2018
Malin Song Accepted 8 September 2018

Research Center of Statistics for Management,

Anhui University of Finance and Economics, Bengbu, China, and
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Xiongfeng Pan, Xianyou Pan and Zhiming Jiao

Faculty of Management and Economics, Dalian University of Technology,
Dalian, China

Abstract
Purpose – The purpose of this paper is to add to the existing research about how corporate performance is
influenced by their basic research (BR) investment. On this basis, the authors examined the moderating effect
of human capital structure (HCS) on the relationship between BR investment and corporate performance.
Design/methodology/approach – Hypotheses were tested using static and dynamic models to analyze a
large-scale data of Chinese A-share listed companies.
Findings – This study provides empirical evidence that contributes to the research about how private BR
investment influences corporate performance in the digital age. In addition, human resource is an important
dynamic ability for enterprise development. Based on the dynamic capability theory, further research finds
that the human resources practice on the knowledge stock can enhance the company’s dynamic capability,
thereby enhancing the company’s core competitiveness.
Research limitations/implications – The results may be affected by the context of the data set.
This study considers the influence of private research investment type on corporate performance, further
studies considering the influence of specific contextual variables, such as corporate industry differences,
could yield richer insights that would help validate the results of this study.
Practical implications – This study provides useful information for managers. As well as increasing the
investment in the BR of enterprise and creating the necessary conditions to increase the competitiveness of
enterprise, they should strive to adjust the structure and quality of researchers involved in BR projects.
Originality/value – This research contributes to the enterprise’s BR investment and the management of
human capital resource. It points that the investment of BR positively influences the corporate performance.
In addition, the increasing of high-skilled labor’s proportion positively promotes the promotion of BR
investment on corporate performance.
Keywords Moderating effect, Corporate performance, Basic research investment, Human capital structure
Paper type Research paper

1. Introduction
The Chinese economy has experienced a long period of rapid growth, and it has created the
so-called “China Miracle” (Tong et al., 2008; Tian, 2016; Tseng and Bui, 2017). However, since
the financial crisis occurred in 2008, the pressure of economic downswing in Mainland China
has gradually increased, and the traditional economic growth model driven by investment
and export has been faced with a tremendous challenge. Taking the innovation-driven
development as a major national strategy is an urgent task for China during the period of
comprehensive economic and social transformation (Choi et al., 2011; Xie et al., 2015; Shao
et al., 2016; Sesay et al., 2018). Especially in the context of supply-side reform, enterprises in Management Decision
China should innovate to drive the increase in total factor productivity (TFP) and achieve © Emerald Publishing Limited
0025-1747
greater efficiency (Aarstad et al., 2016). The investment in research and development (R&D) DOI 10.1108/MD-06-2018-0708
 MD of enterprises is an important factor in increasing the total amount of knowledge and then
using new knowledge to create new applications (Mendigorri, 2016; Yu et al., 2016; Jabbour
et al., 2018). The scale and intensity of investment activities often reflect the scientific and
technological strength and core competitiveness of regions and enterprises (Su et al., 2018;
Wang et al., 2018).
In this paper, we elaborated on the impact mechanism of enterprise R&D investment on
corporate performance at first. On this basis, taking into account the importance of basic
research (BR) investment in creating advanced technology and opportunities for
enterprises, this paper subdivided enterprise R&D investment and researched on the
relationship between enterprise BR investment and corporate performance. Second, due to
the differences in the conditions of enterprises, there are significant differences in the impact
of BR investment on corporate performance among different enterprises. Based on the
perspective of enterprise dynamic capabilities, this paper theoretically expounded that
human capital as an important strategic resource of the company, which has a significant
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impact on the company’s strategic decision-making and operational processes. Further, we

constructed a reasonable empirical analysis model, which deeply confirmed the moderating
effect of human capital structure (HCS) on the relationship between BR investment and
corporate performance, thus providing theoretical and empirical support for better playing
the role of BR investment, and also providing inspiration for corporate managers to make
reasonable and effective R&D investment decisions.
The remainder of this paper is organized as follows: Section 2 gives a comprehensive
review of the relevant literature. Section 3 builds the hypotheses according to theoretical
analysis. Section 4 presents the research design and data processing. Section 5 presents
empirically analysis and results. In Section 6, conclusions and implications of this research
are covered, and limitations and certain directions for future research are indicated.

2. Literature review
Up till date, how to evaluate the economic value of R&D activities of enterprises has become
an important issue. It has been widely concerned by scholars at home and abroad for a long
time. Theoretically, both in innovation economic theory and new growth theory, R&D
investment was crucial among the fundamental drivers of enterprise (Lucas and Ayse,
2018). First, private R&D investment enables enterprises to create new products, develops
efficiency processes, and stimulates strategic cooperation (De and Freel, 2010). Second,
taking the long view, it brings the development opportunity for the enterprise, thus affecting
the enterprise’s survival ability and increasing the competitive advantage of enterprise
(Cohen and Levinthal, 1989). Sougiannis (1994) pointed out that the increase of R&D
investment has a significant positive effect on the improvement of corporate performance.
Singh (2009) utilized a two-stage least square estimation on a sample of 47,140 firm-year
observations over a period of 16 years from 1990 to 2005, and pointed that R&D expenditure
positively affects enterprise’s export sales. Bosworth and Rogers (2010) confirmed that there
was a significant positive correlation between R&D investment and corporate performance
based on the Tobin’s Q-value method. From the perspective of R&D investment intensity,
Falk (2012) believed that it has a significant positive impact on sales revenue growth, thus
effectively boosting corporate performance. Gaur et al. (2014) integrated the resource- and
institution-based views and examined in the broader context of emerging economies. They
found that firms that have more technological resources are more likely to gain benefits and
advantages. Park and Ryu (2015) pointed out that R&D capability and learning capability
were significant drivers of SEMs technology commercialization, which in turn influenced
their business performance. Meanwhile, environmental dynamism was found to moderate
the relationship between technology commercialization and business outcomes. Based on
the data collected from 560 service and manufacturing companies in Germany, Pippel and
 Seefeld (2015) considered that enterprises with closer R&D cooperation with university and Influence of
government have a greater willingness to invest in R&D, which promotes an obvious basic research
increase in product innovation capabilities and has a positive impact on corporate investment
performance. Boles and Link (2016) selected typical start-up companies in ten European
Union countries, and found that enterprise’s sales increase rapidly when R&D practice
becomes the main investment, and ultimately corporate performance will be significantly
improved. Yeom (2017) estimated the effect of R&D investment on technological innovation
of ICT SMEs using binary logistic regression analysis based on 2016 ETRI Survey.
The authors pointed out that R&D investment shows a positive effect on both product and
process innovation. Similarity, Sun (2018) pointed out that R&D intensity was found to be
positively significantly related to corporate performance.
Contrary to the views mentioned above, past scholars believed that R&D investment
has a negative impact on corporate performance. Private R&D activities result in huge
operation costs but incur low diffusion cost, that is why enterprises need to maintain
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certain technological frontiers and increase limitation difficulty, and ensure that their
R&D activities are profitable and prevent other companies to benefit from R&D activities
achievements (Yeh et al., 2010). Thus, for some individual companies, restricted by many
factors, such as the company’s development stage, scale, etc., the smaller scale of R&D
investment and the lower utilization efficiency of R&D fund can hardly promote corporate
performance. Second, R&D investment has an opportunity cost effect, with the increasing
of R&D invest scale, it will inevitably occupy the input of other factors and reduce the
enterprise’s profitability (Yang et al., 2010). Finally, most of R&D expenditures are used to
pay R&D personnel’s salary, and the revenue created in the future for the enterprises is an
intangible asset. Limited by the long R&D investment cycle, any disruption in the course
of R&D activities may result in the loss of R&D personnel and corporate performance
( Ju et al., 2013). Nunes et al. (2012) argued that there was a negative linear
relationship between R&D intensity and growth in non-high-tech SMEs, because R&D
investment can increase the level of risk faced by SMEs and this risk increases the
difficulty of obtaining financial support. Finally, some scholars have also argued that
enterprises, limited by the firm scale, tend not to have the means to invest in private
R&D activities (Avermaete et al., 2003) or cannot always transform R&D into
effective innovation (Laforet, 2009), which has an inhibitory effect on the improvement
of corporate performance.
Finally, with the continuous innovation and development of information technology and the
rapid and deep integration of the internet and the real economy (Tseng, 2017), private R&D
expenditure management has entered the era of big data (Blackburn et al., 2017; Holden, 2016).
Considering the increasingly obvious internal remodeling pressure and the uncertainty of the
external environment, how to obtain a lasting competitive advantage in this highly dynamic
environment has become a research focus in the field of enterprise innovation and performance
management (Wu, 2006; Singh and Gaur, 2013; Kim et al., 2015; Shao et al., 2017; Singh et al.,
2018). In fact, enterprises used big data, gathered from social media steams, sensors embedded in
consumer products and elsewhere to identify problems and improve ideas with a newly launched
research project (Sharwood, 2015; Singh, 2018). In addition, dynamic capability, as a special
ability, is the same as the organization’s other capabilities and is embedded in the organization
(Salvato and Vassolo, 2018). More important, the dynamic capability exists in the form of an
“intermediary,” with the acquisition of resources as a prerequisite, focusing on improving the
efficiency of enterprise resource utilization, and ultimately helping enterprises to obtain economic
profits and competitive advantage (Rodney et al., 2011; Teece et al., 1997; Dubey, Gunasekaran
and Deshpande, 2017; Dubey, Gunasekaran, Helo et al., 2017; Nuruzzaman et al., 2017). This also
means that the resources of the enterprise do not directly affect the enterprise’s competitive
advantage in the dynamic environment, but influence enterprise’s competitive advantage
 MD through dynamic capability. Human resource is an important support element for enterprise
development; the link between human resource and corporate performance has received
significant research attention (Ogunyomi and Bruning, 2016; Young, 2017; Chung, 2010). All of
the scholars believed that human resources management has a positive impact on corporate
performance (Hazen et al., 2017; Youndt et al., 1996; Hitt et al., 2001). In this paper, combined with
the dynamic capability theory, the authors believed that the human resources practice on the
knowledge stock can enhance the company’s dynamic capability, thereby enhancing the
company’s core competitiveness in the digital age.
Based on the review of the above articles, R&D activity is one of the effective
ways for companies to improve their performance, and the relationship between them has
attracted the attention of many scholars. However, the confusion of empirical conclusions
still brings great uncertainty to the timing of government and business decisions.
In addition, the authors often used private R&D expenditure as a corporate research
investment in the previous study, which includes basic R&D application. Among them,
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BR is not only the source of explicit information, but also creates new technological
opportunities and sustainable development opportunities (Klevorick et al., 1995; Salter and
Martin, 2001). Thus, the research focuses on the original and long-term mechanism of BR
expenditure, which has a significant relationship with corporate economic development.
At last, human resource is the core element of the dynamic capability of the company in
the digital age, but few literatures have focused on the moderating effect of this factor
on BR investment.
Our contributions to the corporate performance literature are twofold. First, we have
further subdivided enterprise’s R&D expenditure, studied the relationship between BR
investment and corporate performance from theoretical and empirical two perspectives, and
supplement and expand existing research. Second, we emphasized the significance of HCS
in accentuating the implications of BR investment for corporate performance. We have
demonstrated that an enterprise’s degree of HCS can enable it to better exploit BR
investment for higher corporate performance.

3. Theory development and hypotheses

3.1 BR investment and corporate performance
From the perspective of short term, BR requires a large amount of capital investment.
Limited by capitalization conditions, BR investment costs will inevitably deteriorate the
corporate financial status and reduce corporate performance (Yang et al., 2010; Nunes et al.,
2012). However, from the perspective of long term, BR investment will promotes the
improvement of corporate performance. First, through organizational learning and
knowledge sharing in the BR investment process, the accumulation of heterogeneous
knowledge can enhance the absorptive capacity of the company and increase the synergy
between the internal and external knowledge technology, which brings improvements to the
corporate performance (Lane and Lubatkin, 1998; Levi et al., 2013; Gaur et al., 2013).
Especially with the rapid development of science and technology, production technologies
are characterized by their integration, complexity, and variability. Companies investing in
BR can not only solve problems and create new knowledge, but also improve their
technological absorptive capacity (Wesley and Daniel, 1990). The combination of externally
acquired knowledge technology and internal existing knowledge and technology can
change the company’s existing knowledge stock and knowledge structure (Lee, 2001),
resulting in scale effect and knowledge reorganization effect. Second, intangible assets such
as patents and non-patent technologies that may be generated after BR investment
are also heterogeneous resources of enterprises. According to the resource-based theory,
these heterogeneous intangible assets are valuable, scarce, and difficult to imitate and
substitute. It can bring sustainable competitive advantages to the company (Barney, 1991;
 Zahra et al., 2000), which can help companies achieve performance that exceeds industry Influence of
averages. Based on the above discussions, the following hypotheses are proposed: basic research
H1. BR has a positive effect on the improvement of corporate performance. investment

3.2 The moderating effect of human capital structure on the relationship between BR
investment and corporate performance
The BR investment process of a company is characterized by systematicness, complexity,
and variability (Lee et al., 2017). The pre-investment strategic decision-making and
resource integration in the BR investment process and the commercial operation of new
research directly affect the corporate performance (Cereola et al., 2012; Escriba et al., 2009).
This also means that the BR investment is a process of continuous strategic
decision-making, organization and coordination, and resource integration. It is the
continuous operation and application process of dynamic capabilities of enterprises
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(Teece et al., 1997). These dynamic capabilities include strategic decision-making

capabilities, organizational coordination capabilities, and resource integration capabilities
(Salvato and Vassolo, 2018).
Hambrick and Mason (1984) believed that the human capital is the most important
strategic resource of the company and significantly influences the company’s strategic
decision-making and operation process. The human capital includes the education level,
professional background, work experience, and social status. This paper draws on the board
of directors’ capital model proposed by Haynes and Hillman (2010), and describes the human
capital from the perspective of structure. Specifically, the HCS refers to the overall
educational level, work experience, and the degree of embedding in the enterprise (Birasnav
and Rangnekar, 2010; Jabbour et al., 2017). It also reflects the level of education and
professional experience of the research members has an important impact on the
transformation of BR investment into corporate performance. First of all, BR investment is
an important strategic decision for a company. Prior to making decisions, it is necessary to
conduct comprehensive data collection and feasibility analysis on the external environment,
internal technical conditions and resource allocation, and future market prospects faced by
the company (Singh, 2018; Yun, 2013). As the external environment and future market
prospects are extremely uncertain, and internal technical conditions and resource
allocations are also in a dynamic change, the cognitive ability, market insight, and values of
the enterprise’s human capital directly affect the strategic decision-making process and
ultimately affect the quality of strategic decisions of BR (Guo et al., 2018). The level of
education and professional experience is higher, the ability of technology forecasting,
comprehensive consideration before making decisions, and investment conversion rate is
higher, so that they can make correct strategic decisions and help to develop BR investment
projects successfully. Second, some authors have studied the influencing factors of R&D
team’s innovation performance from the perspective of team organization and collaboration,
and believed that the team members’ spirit, common values and beliefs, mutual cooperation,
and support have a significant positive effect on team performance (Thamhain, 2003;
Al-Ali et al., 2017; Dubey, Gunasekaran and Deshpande, 2017; Dubey, Gunasekaran, Helo et
al., 2017). In fact, the members of the BR team are different from the general human
resources. They have high academic qualifications and technical background and represent
common values and beliefs. Thus, it is easy to further increase the conversion rate of BR
investment (Cable and Judge, 1997; Kristof et al., 2005). Third, the better HCS also reflects the
large proportion of research member with background in the industry, such as having more
related technology and research talents and strategic management talents. These talents
have a sense of market crisis, innovative awareness, and stronger predictability for the
uncertainty in the BR process (Sutcliffe and Zaheer, 1998), so they can make corresponding
 MD adjustments in time to improve the basic research performance. From this, we propose the
second research hypothesis of this paper:
H2. The HCS positively regulates the relationship between BR investment and corporate
performance.

4. Method
4.1 Model design
This study analyzes the influence of BR on corporate performance based on the Mansfild
model proposed by Mansfiled (1980) and the double log-linear model. The special model is as
shown in the follows:

ln TFP it ¼ a0 þa1 ln BRit þmi þeit : (1)

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In an open business environment, corporate performance not only depends on the BR

investment but also on other economic factors. Based on this proposition, this paper added
other factors that reflect the company’s basic conditions into the above model as control
variables, including enterprise scale, enterprise age, and capital structure (CS). The basic
model can be eventually set as:

ln TFP it ¼ a0 þa1 ln BRit þa2 ln X it þmi þeit ; (2)

where TFPit is the corporate performance of i enterprise in year t. BRit represents the basic
research investment. ui is enterprise unobserved individual effect, capturing enterprise i’s all
time-invariant characteristics; εit is the error term, we allow for cross-section by clustering
the standard errors. Xit represents the control variables.
In order to examine the moderating effect of HCS on the relationship between BR
investment and corporate performance, this paper adds the interaction term of HCS and
BR in the basic regression model. The basic model can be extended as follows:

ln TFP it ¼ a0 þa1 ln BRit þa2 ln X it þb1 ðln BRit  ln H CS it Þþmi þeit ; (3)

where HCSit represents HCS of i enterprise in year t.

4.2 Data collection and sample

In 2006, the Ministry of Finance of the People’s Republic of China stipulated the accounting
standards for enterprise intangible assets, subdivided the expenditures of internal R&D
projects of the company, and clearly pointed out that there are significant differences in
research objectives, nature, and method between basic R&D research, which are required to
perform accounting separately. Taking into account the information content of big data, the
authors in this paper constructed a large-scale date concludes 3,459 A-share listed companies
from 2011 to 2016. All of the data are mainly selected from Resset Financial database and
Wind database. In order to ensure the completeness of the data and the matchability of all
variables, based on the encoding of the company’s name, the authors used Stata software to
match each variable and exclude the enterprises with missing data. The final effective data
contain 83 A-share listed companies. The price data are deflated according to the
corresponding price index. All of the subsequent empirical analysis in this paper is mainly
based on Stata 13.0. Descriptive statistics of each variable are shown in Table I.
4.2.1 Explained variable. TFP with reference to the previous literature, TFP reflects the
efficiency of corporate production activities in a certain period (Griliches and Mairesse, 1991;
Hall and Jones, 1999) and can be used as an indicator to measure scientific and technological
 progress and financial status of enterprises; thus, this paper mainly measures corporate Influence of
performance with TFP (Song, 2015; Rai and Mahapatra, 2009). From the perspective of basic research
economic growth, TFP is equal to the residual value of total output after removing inputs investment
such as labor and capital. In this paper, the author measures the TFP based on the method
of Sequential Malmquist Index (Caves et al., 1982).
Measuring TFP requires explicit input and output data. In this paper, the input data
mainly include labor and capital and the output variable is the main business income of the
enterprise; where, the labor is measured by the total number of employees in the enterprise.
The capital stock Kit is calculated using the perpetual inventory method, as shown in the
following equation:
K it ¼ ð1dÞK it1 þI it : (4)
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The capital stock in the base year 2011 is calculated according to the following equation:
K i2010 ¼ I i2010 =ðg i þdÞ; (5)
where Iit is the capital investment amount of enterprise i in the year t, gi is the average
growth rate of fixed capital investment, δ is the depreciation rate of capital stock and is
equal to 9.6 percent (Zhang et al., 2007).
4.2.2 Core variable. BR: consistent with the investment in fixed assets, the flow data
were converted into stock data for the amount of BR investment. It needs to be noticed that
the depreciation rate of BR investment is 15 percent in this paper ( Jaffe, 1986).
4.2.3 Regulated variable. HCS: according to the research of Asuyama (2012), this paper
uses the proportion of highly skilled labor in the total labor to measure the HCS. With
regard to the definition of high-skilled labor, this paper classifies high-skilled labor and
low-skilled labor according to the International Education Standard Classification issued by
UNESCO. Among them, the high-skilled labor is the labor who has received college
education and above.
4.2.4 Control variable. 4.2.4.1 Enterprise size (Size). The famous “Schumpeter
Hypothesis” holds that large enterprises have stronger innovation capabilities than small
firms because of their relative advantage in economic size, risk sharing, and financing
channels. Meanwhile, a large number of empirical findings also confirm the impact of firm
size on corporate R&D investment, but it is still unclear whether this effect is linear. In this
paper, we use the size of total assets to indicate the firm size.
4.2.4.2 Corporate age (Age). Younger companies and the companies that already have
mature market experience have different judgments on market prospects, which will affect
the company’s research engine. At the same time, the longer the company is established, the
more likely it is to focus on BR investment. In this paper, we use the establishment time of
each enterprise to indicate the age of the company.

Variable Symbol Ave SD Min. Max.

Total factor productivity TFP 1.012 0.238 0.472 2.710

Basic research investment BR 6.162 7.146 0.053 51.551
Human capital structure HCS 0.562 0.224 0.105 1.000
Enterprise scale Size 17.299 1.124 15.068 20.479
Enterprise age Age 2.751 0.246 1.946 3.332 Table I.
Capital structure CS 0.415 0.209 0.022 0.964 Descriptive statistics
Note: The variable of size and age is taken for the natural logarithm of sample data
 MD 4.2.4.3 Capital structure (CS). When the total debt of the enterprise is far greater than the total
assets, high interest squeezes the current operating cash flow of the enterprise, thus reducing
the amount of funds invested by the enterprise in BR. At the same time, high interest rates on
debt make companies face financial difficulties. If high-risk and long-term BR is blindly added
to the project, the financial risks faced by companies will be further increased.

5. Results
5.1 Basic test
First, in order to avoid the pseudo regression, we perform a unit test before the regression
analysis. According to the test results presented in Table II, all of the variables reject the
null hypothesis that there is a unit root at the 1 percent significant level, which means that
panel data are smooth.
Second, in order to avoid the result bias caused by multicollinearity, we test the
correlation coefficient between variables. The test results are shown in Table III. It can be
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seen that all of the correlation coefficients between variables are less than 0.5, which means
that there is no multicollinearity among the variables.
Finally, according to the Kao test and Pedroni test, we tested the long-term co-integration
relationship between BR investment and corporate performance based on the PP and ADF
statistic, and the test result is shown in Table IV. Observing the test result, we can confirm
that there is a significant long-term balanced relationship between BR investment and
corporate performance.

Variable LLC Fisher–ADF PP–Fisher Result

TFP 0.0000 0.0002 0.0000 Smooth

BR 0.0000 0.0000 0.0000 Smooth
HCS 0.0001 0.0000 0.0000 Smooth
Size 0.0021 0.0011 0.0001 Smooth
Table II. Age 0.0001 0.0000 0.0000 Smooth
Unit root test result CS 0.0000 0.0003 0.0000 Smooth

Variable TFP BR Age Size CS

TFP 1.0000
BR 0.0594** 1.0000
Age 0.1430*** −0.1478*** 1.0000
Table III. Size 0.0143 −0.3732*** 0.2941*** 1.0000
Correlation CS −0.0192 −0.4670*** 0.1131** 0.3741*** 1.0000
coefficient matrix Note: **,***Significant at 5 and 1 percent levels, respectively

Method Statistics Result

Kao test ADF −6.850***

Pedroni test Panel PP statistic −17.963***
Panel ADF statistic −13.164***
Table IV. Group PP statistic −16.579***
Cointegration Group ADF statistic −11.379***
test result Note: ***Significant at 1 percent level
 5.2 The relationship between basic research investment and corporate performance Influence of
Based on the sample data, we plot the scatter plot between BR investment and corporate basic research
performance, as show in Figure 1. Observing the fit curve in the chart, we can see that there investment
is a positive one-way function relationship between BR investment and corporate
performance. From this, it can be seen that for the current stage, the increase of BR
investment in enterprises is an effective measure to enhance corporate performance.
On this basis, based on the previous formulae (1) and (2), this paper quantitatively
analyzes the correlation between BR investment and corporate performance. Before
conducting empirical analysis, the specific form of the regression model needs to be
determined. The role of the individual effect μi in the panel model is to control the
enterprise’s fixed effect that does not change with time. If the unobservable variable μi is not
related to the explanatory variable, including it into the error term does not affect the
consistency of the estimation result, thus the regression model can be estimated by the
random effect method. Otherwise, the fixed effect approach is adopted. Hausman test result
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shows that the χ2 statistic is 12.20 and rejects the null hypothesis of random effect at
a 5 percent significance level, so a fixed effect method is used to eliminate the effect of
μi. In addition, in order to test the robustness of the influence of BR investment on corporate
performance, we used a stepwise regression method and added control variables in order.
The final regression results are shown in Table V.
From the first column of Table V, it can be seen that the BR has a significant positive
effect on corporate performance, with an elasticity coefficient of 0.118, which means
that BR can generally promote the improvement of corporate performance. In the Columns
2–4 of Table V, this paper gradually adds the control variables such as enterprise
age, enterprise size and the CS, and the influence of BR on corporate performance is
tested again. From the estimation results of each column, it can be seen that BR still
has a significant role in promoting the corporate performance. This conclusion confirms
the correctness of the first hypothesis in this paper. That is, the investment in BR
has a positive effect on the improvement of corporate performance. Consistent with the
past research, previous authors have pointed out that innovation is an important way
for late-growth enterprises to leapfrog development, and BR can accumulate
corresponding innovation capabilities for enterprises, thus improving corporate
performance (Martinez-Senra et al., 2015). Meanwhile, this paper believes that BR can
improve corporate performance through enhancing the absorptive capacity and

0.5

–0.5

–1
–4 –2 0 2 4
BR Figure 1.
Curve fitting
TFP Fitted values
 MD Static Dynamic
Differential
Variable (1) (2) (3) (4) System GMM GMM

L.TFP 0.156** (2.27) 0.171* (1.77)

BR 0.069*** (3.96) 0.058*** (3.19) 0.057*** (3.16) 0.054*** (2.95) 0.066** (1.96) 0.266** (2.28)
Age 0.633** (2.32) 1.030** (2.52) 1.107*** (2.67) 1.009*** (3.37) 0.182 (0.12)
Size −1.020 (−1.30) −0.939 (−1.19) −0.719 (−1.08) 0.188 (0.07)
CS −0.039 (−1.03) 0.007 (0.10) −0.140 (−0.90)
cons −0.100*** (−4.17) 1.795 (0.92) 1.449 (0.73) 0.955 (0.51)
R2 0.045 0.061 0.066 0.069
AR(1) 0.000 0.000
AR(2) 0.583 0.232
Sargan 0.316 0.287
Table V. test
Basic model Notes: The numbers presented in the parentheses are the t-statistic of the regression coefficients.
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regression results *,**,***Significant at 10, 5, and 1 percent levels, respectively

increasing the synergy of the company (Griliches, 1986). It needs to be noticed, China’s BR
investment, especially the BR of enterprises, is still lower than the general level of
emerging countries and developing countries at present, and also lower than the level of
industrialization in the same period in developed countries. The lag of financial
development, especially the slow development of capital markets, the lack of R&D
institutions and researchers, and the lack of intellectual property protection all contribute
to the low proportion and strength of BR in China. Therefore, improving the support and
allocation efficiency of government financial support for BR gives full play to the
complementary role of government plans and market mechanisms, and induce enterprises
to increase investment in BR (Gaur et al., 2018). Other factors include coordinating all
aspects of the company’s own factors, integrating global knowledge to improve BR
capabilities, and achieving the learning and absorption of cutting-edge knowledge and
technology (Lee et al., 2017; Popli et al., 2017).
In order to fully consider the time lag effect of corporate performance, this paper
establishes a dynamic panel measurement model and introduces the lag item of the
corporate performance as an independent variable into the model. On this basis, the
impact of potential factors not included in the econometric model on corporate
performance is examined, and then we compared with the regression results obtained
based on the static panel model. For dynamic panel estimation, this paper mainly uses the
generalized method of moments (GMM) estimator proposed by Arellano and Bover (1995)
and Blundell and Bond (1998), and the specific results are shown in Columns 5 and 6 of
Table V. According to AR test and Sargan test results listed in the last three rows
of Table V, the serial correlation test of residuals AR(2) proves that the null hypothesis
is accepted at the 10 percent significance level. Besides, the values of Sargan test are
greater than 0.1, implying that the instrument variables are available. According to the
regression coefficients of the lagged corporate performance (L.TFP), the regression
coefficients are all in the interval [0, 1] and pass the test of significance at 10 percent
level, and positive regression coefficients indicate that there is an obvious lag effect of
corporate performance. It means that the growth of corporate performance has strong
time inertia, that is, the changes in early-stage corporate performance has a significant
impact on current growth (Bischoff and Buchwald, 2018). According to the regression
coefficients, the impact of BR investment on corporate performance is still significant
positive, and the elasticity coefficients under system GMM and differential GMM are
0.066 and 0.266, respectively.
 5.3 The moderating effect of human capital structure on the relationship between basic Influence of
research investment and corporate performance basic research
In the previous section, we have confirmed the positive impact of BR investment and investment
corporate performance. At the same time, we pointed out that the relationship between R&D
and corporate performance may be quite different due to the influence of the company’s own
factors (Lee et al., 2017; Popli et al., 2017). Combined with the theoretical analysis of the
previous article, this section analyzed the moderating effect of HCS on the relationship
between BR and corporate performance, this paper adds the interaction term of HCS and BR
into the basic model, as shown in Equation (5). It is noteworthy that this model incorporates
the interaction term of HCS, which may lead to multicolinearity. Thus, this paper uses the
decentralization method to process the relevant variables (Zhu et al., 2017). Similarly, in the
empirical analysis process of interaction effect, we till test from the static and dynamic two
perspectives, in which the static model also adopts a fixed effect model and gradually adds
control variables. In the dynamic model, we still show the regression results of the system
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GMM and differential GMM models. The specific results are listed in Table VI.
According to the estimation results in Table VI, it can be seen that after the interaction
items are added, the effect of BR on corporate performance is still significantly positive.
The regression coefficient of the interaction term is significantly positive, which means that
in the companies with a sound HCS, the positive effect of BR on corporate performance is
more significant, as the effect of BR on corporate performance of low HCS and high HCS is
0.056 and 0.107, respectively. When we successively add the control variables into the
regression model, the regression coefficients of the interaction item are always significant.
In addition, in the dynamic panel model which added the first-order lag items of corporate
performance into the regression model, the regression results of system GMM and
differential GMM confirm that the positive regulation effect of HCS is robust. To sum up, the
second hypothesis in this paper is proved, that is, the HCS positively regulates the
relationship between BR investment and corporate performance. Hence, we believe that
better human capital not only has a positive influence on corporate performance (Hazen
et al., 2017), but also is an important dynamic capability embedded in corporate
organizations. That is, to a certain extent, BR investment itself is static and cannot be
automatically converted into an enterprise value. Economic performance and competitive
advantage must be achieved through the management and creation of knowledge.

Static Dynamic
Differential
Variable (1) (2) (3) (4) System GMM GMM

L.TFP 0.126* (1.74) 0.199** (1.98)

BR 0.056*** (2.98) 0.049*** (2.58) 0.048*** (2.58) 0.047** (2.46) 0.110** (2.28) 0.201* (1.71)
BR*HCS 0.051** (2.13) 0.040* (1.63) 0.038* (1.59) 0.036* (1.52) 0.052* (1.74) 0.243* (1.81)
Age 0.525* (1.88) 0.890** (2.13) 0.964** (2.26) 0.373** (2.21) −0.302 (−0.28)
Size −0.921 (−1.18) −0.859 (−1.09) −0.410 (−0.69) −1.112 (−0.50)
CS −0.033 (−0.87) 0.028 (0.80) 0.105 (0.87)
cons −0.125*** (−4.70) −0.631** 1.632 (0.84) 1.348 (0.68) 0.724 (0.44)
（−2.33）
R2 0.059 0.068 0.072 0.074
AR(1) 0.002 0.001
AR(2) 0.380 0.612
Sargan 0.247 0.639
test Table VI.
Notes: The numbers presented in the parentheses are the t-statistic of the regression coefficients. Moderating effect
*,**,***Significant at 10, 5, and 1 percent levels, respectively regression results
 MD In particular, under the condition that the company’s BR investment is relatively general,
the improvement of the human resource capital can make up for the lack of insufficient
resources (Salvato and Vassolo, 2018). Especially in the digital age, effectively adjusting the
structure of human capital and improving the ability of acquisition and processing of
information (Tseng, 2017) has a significant positive promote effect on BR investment and
finally promoting the improvement of corporate performance.

6. Conclusion and implication

With the wide implementation of technology introduction and encouragement of innovation
policies, some Chinese enterprises have achieved a transition from technology introduction to
independent innovation. However, from the current stage, the enterprise innovation in China
mainly based on improved innovation, the number of invention patents is far lower than the
number of design patents and utility model patents, and the independent innovation
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capability related to core technology is still weak. Since the beginning of the twenty-first
century, BR has become an important channel for expanding the breadth and depth of applied
knowledge, and an important driving force for promoting Chinese enterprises to achieve
independent innovation and enhance their core competitiveness. If China wants to
successfully complete the dynamic transition from technologically catch-up development to
self-innovation development and avoid falling into a low-level cycle of technological progress
in “introduction–improvement–reintroduction,” it is urgent to increase investment in BR,
especially with high technology. Investment in BR related to enterprise development will
increase the self-innovation capabilities and reduce the dependence on core technology
imports so as to achieve a high level of “introduction–improvement–independent
development,” and then improve the corporate performance and core competitiveness.
In this paper, the authors elaborate theoretically the influence mechanism of BR
investment on corporate performance at first. At the same time, the authors discuss the
moderating effect of HCS based on dynamic capability theory. At the empirical research level,
this paper expands on the basis of the Mansfild model and takes the form of a double
log-linear model to analyze the influence of BR investment on corporate performance.
On this basis, the authors collect a large-scale data from Chinese enterprises listed in A-share
and test the rationality of the theoretical hypothesis from static and dynamic panel model two
perspectives. The results show that: BR shows a significant positive effect on corporate
performance. It means that BR serves as an important channel for knowledge expansion, and
the promotion of corporate performance shows the effect of knowledge accumulation. HCS
moderate the positive impact of external collaboration on environmental and economic
performance. It means that in the companies with a sound HCS, the positive effect of BR on
corporate performance is more significant. This paper has profound policy implications:
(1) BR has significantly promoted enterprise performance, and in most cases, the output
elasticity of BR exceeds the output elasticity of R&D personnel. BR enables
enterprises to break through the technical problems, and effectively help companies
to change their original technology routes, discover and grasp new technological
opportunities, and establish “new production functions” to significantly improve
performance. For now, there is still much room for growth in the absolute amount of
BR investment for Chinese companies, and the potential for BR to improve corporate
performance remains to be further released. Therefore, the state encourages the
policy orientation of BR, and should also face the innovation of enterprises, and
encourage enterprises to play a greater role in the main body of innovation.
Enterprises need to start with BR project investment, provide more equipment and
financial support for researchers engaged in BR, and increase the research
enthusiasm of researchers to gain more BR results.
 (2) Human capital is an important factor that can bring competitive advantages to Influence of
enterprises. Enterprises must improve the dynamic capabilities of knowledge basic research
acquisition, integration, and release of human capital. As far as the improvement of investment
corporate performance is concerned, both the upgrading of human capital of
enterprises and the improvement of the management and conversion capabilities
of basis research investment can be achieved. In particular, managers should
reasonably construct and optimize the enterprise team, select the people with high
education and rich functional background to join the team, which will help to obtain
more BR investment. Other factors include building a learning organization,
providing training and continuing education opportunities, enabling an effective
information exchange platform within the team, strengthening the team’s
cohesiveness, and enhancing the stock and quality of the team’s human capital;
strengthening corporate culture, stimulating employees’ sense of mission and
belonging, and forming a good organizational atmosphere within the enterprise.
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(3) In the digital age, based on the support of modern multimedia and information
technology, it is necessary to build a digitization management platform within the
enterprise, employ digital technology to realize the digital management of human
capital, and quickly gather information and provide timely and effective analysis.
In addition, the full coverage of digitization management should be achieved, such
as talent recruitment, promotion, etc.; thus enhancing core competence and
improving the performance of the enterprise.

Acknowledgments
The authors thank anonymous referees and editors for their very constructive comments on
the initial draft of the paper, and the work was support by the National Natural Science
Foundation Project (Grant No. 71303029), Major Projects in Philosophy and Social Science
Research from the Ministry of Education of China (Grant No. 14JZD031), Dalian Science and
Technology Plan Project (2015D12ZC176), and Dalian Youth Science and Technology Star
Breeding Plan Project (2016RQ004). However, the authors are responsible for any errors.

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Further reading
Amason, A.C. and Sapienza, H.J. (1997), “The effects of top management team size and interaction
norms or cognitive and affective conflict”, Journal of Management, Vol. 23 No. 4, pp. 495-516.
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on software industry in China”, IEEE International Engineering Management Conference
(IEEE Cat. No. 04CH37574), Singapore, October 18-21.
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Research Technology Management, Vol. 49 No. 2, pp. 25-36.
Singh, S.K. and Gaur, S. (2018), “Entrepreneurship and innovation management in emerging
economies”, Management, Vol. 31 No. 1, pp. 2-3.

Corresponding author
Xiongfeng Pan can be contacted at: xiongfengpan@163.com

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