Influence of R&D and IPR regulations on the performance of IT firms in India: An Empirical Analysis using Tobin's Q Approach

Abstract

Influence of Research and Development (R&D), as well as regulation on the performance of the industry, is known. However, in a stronger property regime R&D activities become more focused, and innovation-oriented that result in better performance in the organization. Information Technology (IT) industry being the front runner of the knowledge economy is driven by innovation, which in turn reflects on its performance. This quest led us to not only understand the separate influence of R&D and intellectual property rights regulations but also the interaction of both on the performance of IT firms. This paper, in the context of India, investigates the effects of R&D intensity, implementation of WTO-TRIPS agreement and their interaction, on the performance of Information Technology (IT) firms in India. We included some firm-specific controls to reduce their effects on the performance. The performance is measured using Tobin's Q. Firm-level data from Centre for Monitoring Indian Economy Pvt. Ltd (CMIE) Prowess database for the period 2000-2016 are used. An empirical study is conducted using unbalanced time series data and Random-effects GLS regression method with and without controls and interaction. Our results suggest that the IT firm's performance increases with increase in the R&D intensity when interacted with World Trade Organization -- Trade-Related Aspects of Intellectual Property Rights (WTO-TRIPS).