Short- and long-run effects of internationalization and R&D intensity on firm performance

• The level of R&D intensity is negatively associated with firm performance.
• The level of R&D intensity is positively associated with firm value.
• The level of internationalization has no effect on ROA.
• The level of internationalization has a positive effect on ROS.
• The level of internationalization has a negative effect on firm value.

Investing in building new knowledge and capability is likely to benefit a firm in the long run but has a negative effect on the firm’s short-term performance. Firms that exploit their knowledge base across foreign markets better than their competitors should have superior firm performance. Using a dataset that covers all non-financial firms listed on US stock exchanges during the period 1990–2013, we show that the level of R&D intensity is negatively associated with operating performance and is positively correlated with firm value. The negative effect of R&D intensity on ROS is evident for high R&D firms and is not evident for low R&D firms. The level of internationalization has no effect on ROA, a positive effect on ROS, and a negative effect on both stock returns and Tobin’s Q. Furthermore, we document some evidence for the moderating effect of internationalization on the relationship between R&D intensity and firm performance.