An analysis of the optimal research and development investment level of contractor using the panel threshold regression model

This study explores the threshold effect between R&D investment and firm performance in the construction industry, focusing on optimizing R&D spending in this capital-intensive sector. Unlike industries with shorter innovation cycles, construction requires long project durations, high costs, and regulatory compliance, making strategic R&D allocation essential. Using the panel threshold regression model (PTRM), the study analyses data from 136 Korean construction firms with over 100 employees and in-house R&D centres. Threshold values of 0.47% for R&D project cost and 2.25% for researcher ratio are identified, beyond which investment efficiency declines. PTRM is suitable for detecting nonlinear effects, though future studies should test alternative models for greater reliability. While firm-specific financial factors are controlled, external influences such as market dynamics and government policies are not considered. A five-year lag is assumed between R&D investment and outcomes, aligning with South Korea's planning norms, but alternative lags are recommended for further study. The findings offer practical insights for SMEs in managing R&D and financial constraints, with relevance extending beyond Korea to developing nations seeking to close technological gaps. Future research should refine sector-specific benchmarks and consider firm size variations for more applicable R&D strategies.