R&D Expenditure and Firm Performance: Empirical Evidence from Australian Mining Firms

In the context of the Australian economy, the mining industry has played a significant role, with an increasing percentage of export share over the years, with 60 per cent of the national export hare in 2019 as its peak. However, the mining industry faces a challenge in determining mineral prices that heavily rely on the condition of the global economy, particularly the change in global demand for and supply of minerals. This situation makes it imperative for mining firms to maintain their sustainability and competitive advantage. Conducting and spending on research and development (R&D) is essential to reducing operational costs while increasing productivity, which indirectly influences firm performance. In fact, on the contrary, spending on R&D among firms in the mining industry is very low and in steady decline. Using the data of mining firms listed on the ASX in the period 2006-2017, this study uses system general method of moment (GMM) to understand the influence of R&D expenditure on firm performance at the firm level. Firm performance is measured using profitability, revenue growth and Tobin's q by controlling Leverage, firm size, previous year profit, prior year revenue growth, and year dummies since they influence a firm's decision to conduct R&D activities. The findings show that spending on R&D activities in mining firms has a significant relationship with firm profitability and revenue growth. A similar finding for the relationship between spending on R&D activities and Tobin's q after controlling profitability is also reported. The results confirm the importance of focusing on R&D activities among mining firms which contributes to the body of knowledge and addresses the paucity of research on the influence of R&D expenditure on firm performance of the Australian mining industry. For policymakers and the industry, this study provides empirical evidence to design more effective policies and adopt broad-ranging stimulus programs and adjust various taxes and spending programs simultaneously. Finally, this study recommends that the Australian Government, especially the Department of Industry, Science, Energy, and Resources, maintain a strong relationship with the mining industry as one of the top economic growth contributors. This strong relationship is essential to provide support for the mining equipment, technology and service (METS) sector to sustain the mining industry in Australia.