The Impact of Sunk Cost Effects from Research and Development Investment on Firm Profits in Biomedical and Pharmaceutical Enterprises
Research Article
Open Access
CC BY

The Impact of Sunk Cost Effects from Research and Development Investment on Firm Profits in Biomedical and Pharmaceutical Enterprises

Haoming Li 1*
1 Chongqing University
*Corresponding author: lhm0125666@163.com
Published on 13 August 2025
Journal Cover
AEMPS Vol.210
ISSN (Print): 2754-1177
ISSN (Online): 2754-1169
ISBN (Print): 978-1-80590-319-2
ISBN (Online): 978-1-80590-320-8
Download Cover

Abstract

The biomedical and pharmaceutical industry, being intrinsically tied to human life and health security, currently demonstrates a development paradigm predominantly propelled by biopharmaceutical innovation and cross-disciplinary technological convergence, with sustained growth in Research and Development (R&D) investment intensity observed across the sector. To sustain competitive dominance in the marketplace, enterprises must continuously allocate substantial capital towards pioneering technologies and next-generation product development. However, the substantial allocation of funds to R&D inevitably triggers the sunk cost effect, exerting measurable impacts on corporate profitability. This aspect of the issue has not yet been comprehensively analyzed or thoroughly studied within academic and industry research frameworks. Based on this background, this article will partially supplement the research gaps in this area by combining relevant data. Based on biomedical and pharmaceutical enterprises, this article analyzes the impact of R&D intensity on financial risk and R&D intensity on asset utilization, and summarizes the relationship between R&D intensity and corporate profits. The findings reveal that there is an inverse relationship between R&D intensity and Debt-to-Asset Ratio, a coexistence of high R&D intensity with low Total Asset Turnover, and a nonlinear (roughly inverted U-shaped) correlation between R&D intensity and ROE. Contemporary biomedical and pharmaceutical enterprises are also roughly divided into two categories according to the effect of sunk costs: innovative biomedical and pharmaceutical firms and generic biomedical and pharmaceutical firms.

Keywords:

Biomedical and pharmaceutical industry, Sunk cost effect, R&D, Firm profits

View PDF
Li,H. (2025). The Impact of Sunk Cost Effects from Research and Development Investment on Firm Profits in Biomedical and Pharmaceutical Enterprises. Advances in Economics, Management and Political Sciences,210,51-56.

References

[1]. Industrial and Information Technology Department. (2022). Interpretation of the "14th Five-Year" plan for the development of the pharmaceutical industry. https: //www.gov.cn/zhengce/2022-02/01/content_5671569.htm

[2]. Sutton, J. (1991). Sunk Costs and Market Structure. MIT Press, London.

[3]. Mañez, J. A., & Love, J. H. (2020). Quantifying sunk costs and learning effects in R&D persistence. Research Policy, 49(7), 104004.

[4]. Xiang, W. (2022). Research on the effect of R&D investment and non-R&D investment on profit.

[5]. Chen, Z., Güney, Ş., & John, R. S. (2024). Sunk cost effects for thee but not for me: Decisions and predictions involving others. Acta Psychologica, 251, 104557.

[6]. Ronayne, D., Sgroi, D., & Tuckwell, A. (2021). Evaluating the sunk cost effect. Journal of Economic Behavior & Organization, 186, 318–327.

[7]. Tversky, A., & Kahneman, D. (1986). The framing of decisions and the evaluation of prospects. In Studies in Logic and the Foundations of Mathematics (Vol. 114, pp. 503-520). Elsevier.

[8]. Yifeng Wan, Xue Han(2008). Research on ROE Predictive Ability and Information Value: Review and Evaluation. Accounting Monthly. 29, 78-81. doi: 10.19641/j.cnki.42-1290/f.2008.29.034.

[9]. Zhang, X., & Han, Z. (2025). Asset liability ratio and corporate debt risk: From the perspective of debt structure and asset quality. Economic and Management Research, 46(4), 134-144. Doi: 10.13502/j.cnki. Issn1000-7636.2025.04.008

[10]. Huang, H. (2021). An empirical study on main financial indicators and stock price fluctuations of listed companies. Hebei Enterprise, (7), 102-104. DOI: 10.19885/j.cnki.hbqy.2021.07.030.

[11]. Sina Finance. (2024). Market center about the pharmaceutical and biological industry. https: //vip.stock.finance.sina.com.cn/mkt/#sw_yysw

References

[1]. Industrial and Information Technology Department. (2022). Interpretation of the "14th Five-Year" plan for the development of the pharmaceutical industry. https: //www.gov.cn/zhengce/2022-02/01/content_5671569.htm

[2]. Sutton, J. (1991). Sunk Costs and Market Structure. MIT Press, London.

[3]. Mañez, J. A., & Love, J. H. (2020). Quantifying sunk costs and learning effects in R&D persistence. Research Policy, 49(7), 104004.

[4]. Xiang, W. (2022). Research on the effect of R&D investment and non-R&D investment on profit.

[5]. Chen, Z., Güney, Ş., & John, R. S. (2024). Sunk cost effects for thee but not for me: Decisions and predictions involving others. Acta Psychologica, 251, 104557.

[6]. Ronayne, D., Sgroi, D., & Tuckwell, A. (2021). Evaluating the sunk cost effect. Journal of Economic Behavior & Organization, 186, 318–327.

[7]. Tversky, A., & Kahneman, D. (1986). The framing of decisions and the evaluation of prospects. In Studies in Logic and the Foundations of Mathematics (Vol. 114, pp. 503-520). Elsevier.

[8]. Yifeng Wan, Xue Han(2008). Research on ROE Predictive Ability and Information Value: Review and Evaluation. Accounting Monthly. 29, 78-81. doi: 10.19641/j.cnki.42-1290/f.2008.29.034.

[9]. Zhang, X., & Han, Z. (2025). Asset liability ratio and corporate debt risk: From the perspective of debt structure and asset quality. Economic and Management Research, 46(4), 134-144. Doi: 10.13502/j.cnki. Issn1000-7636.2025.04.008

[10]. Huang, H. (2021). An empirical study on main financial indicators and stock price fluctuations of listed companies. Hebei Enterprise, (7), 102-104. DOI: 10.19885/j.cnki.hbqy.2021.07.030.

[11]. Sina Finance. (2024). Market center about the pharmaceutical and biological industry. https: //vip.stock.finance.sina.com.cn/mkt/#sw_yysw

Cite this article

Li,H. (2025). The Impact of Sunk Cost Effects from Research and Development Investment on Firm Profits in Biomedical and Pharmaceutical Enterprises. Advances in Economics, Management and Political Sciences,210,51-56.

Data availability

The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.

About volume

Volume title: Proceedings of ICFTBA 2025 Symposium: Data-Driven Decision Making in Business and Economics

ISBN: 978-1-80590-319-2(Print) / 978-1-80590-320-8(Online)
Editor: Vartiak Lukáš
Conference website: https://2025.icftba.org/Bratislava.html
Conference date: 12 December 2025
Series: Advances in Economics, Management and Political Sciences
Volume number: Vol.210
ISSN: 2754-1169(Print) / 2754-1177(Online)

© 2024 by the author(s). Licensee EWA Publishing, Oxford, UK. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license. Authors who publish this series agree to the following terms:

1. Authors retain copyright and grant the series right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this series.

2. Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the series's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgment of its initial publication in this series.

3. Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See Open access policy for details).

For authors
For editors
For reviewers

Cookies are used by this site.
Copyright © 2024 EWA Publishing, its licensors, and contributors. All rights reserved, including text and data mining, AI training, and similar technologies.