The effect of R&D activities on the market response and company's performance during the shock caused by the COVID-19 pandemic in Iran

Abstract

PurposeThe purpose of this study is to investigate whether research and development (R&D) activities reduce the performance damage caused by a critical situation, such as the COVID-19 pandemic, or not. Also, this study tries to explain whether the market in its reactions pays attention to companies' R&D activities or not during the COVID-19 critical situation.Design/methodology/approachThe official announcement of the COVID-19 disease in Iran is considered the date of the event in this study. To consider the effect of R&D activities on the performance, three similar time periods before and after the coronavirus pandemic have been considered. Due to the widespread prevalence of coronavirus in Iran, this country has been selected to answer the research questions.FindingsThe results showed that the companies that have more R&D activities performed better than other companies during this period and were able to better manage this crisis. Furthermore, companies with more R&D activities suffered lower abnormal returns during coronavirus shocks than other companies.Research limitations/implicationsBased on the research results, the issues that were discussed on the importance of R&D activities in the accounting literature is confirmed, and the results show the importance of R&D activities on the company's ability to overcome crises.Practical implicationsBased on the results of this research, it can be suggested that even in difficult and critical conditions, investment in R&D activities should not be stopped and decrease.Originality/valueIn the accounting literature, the long-term effect of R&D activities on the survival of companies has always been considered. In this study, the effect of R&D activities on market response and firm performance in a real shock is investigated, which is the innovation of this research.