How Do Sales in High-Tech Firms React to Changes in Expenses? Evidence from Finland

The aim is to analyze the functioning of high-tech companies from a new perspective. The framework is based on a multiplicative sales function leading to constant expense elasticities of sales. The objective is to test the hypothesis that the expense elasticities of sales revenue are associated with financial performance, especially with profitability. Elasticities are estimated for four categories of expenses: expenses of goods sold, R&D expenses, other operating expenses, and depreciations. Empirical data are extracted from ORBIS database. The sample is limited and includes only sixteen largest Finnish manufacturing companies in the high-tech sector. Evidence shows that elasticities are associated with performance. The growth of the companies is positively correlated with the elasticity of expenses of goods sold, but negatively correlated with the elasticity of other operating expenses. The results give support to the research hypothesis. EBIT margin and ROE are positively associated with the elasticity of R&D expenses whereas ROA is positively correlated with the elasticity of expenses of goods sold and the sum of the four expense elasticities. It is also negatively associated with other operating expense elasticity of sales.