Firm's Intelligent Manufacturing Strategy and R&D Expenditures

Intelligent manufacturing strategy becomes important and influential as the development trend of advanced manufacturing systems. This study examines the impact of firm's intelligent manufacturing on managers' R&D investment decisions from the perspective of strategic transformation. Moreover, we assess whether this impact is moderated by CEO tenure and government subsidies. Based on a sample of 7,522 firm-year observations in Chinese listed manufacturing firms from 2015-2019, we construct a more detailed measurement of intelligent manufacturing strategy by conducting textual analysis of Management Discussion and Analysis (MD&A) report to obtain the information of firms' implementing intelligent manufacturing. Our empirical findings show that firms' intelligent manufacturing strategies are positively related with R&D expenditures after controlling for other firm characteristics that would affect R&D expenditures, consistent with the notion that managers increase R&D investment for the realization of intelligent manufacturing strategy to achieve corporate profitability and their self-worth enhancement. Furthermore, we find that this positive relationship is more pronounced in firms with longer CEO tenure, suggesting that CEOs have a higher investment success rate and solid organizational identity with the increase of their tenure. We also find that government subsidies positively moderate the relationship between intelligent manufacturing strategy and R&D expenditures, which reveals the positive role government subsidies play in alleviating firms' financing constraint and thus helping management have enough funds to invest. The results are robust to a battery of sensitivity tests, including a propensity score matching method, alternative R&D investment measures as well as controlling for other innovation impact. In additional analyses, we find that intelligent manufacturing strategy enhances the level of innovation output by promoting firms' R&D investment, confirming the mediating effect of R&D investment in the relationship between intelligent manufacturing strategy and innovation performance. Overall, our findings are consistent with the view that intelligent manufacturing strategy improves manager's incentives and resulting more investment in innovation. Given that R&D is an activity under the purview of management subject to incentives and is of great interest to firms' long-term benefit and the overall development of society, our findings should be of great interest to management, investors, and regulators.