Strategic Cost Management and Financial Value Creation: A Sectoral Analysis of Manufacturing Firms in Developing Countries

The strategic management of costs, particularly through compliance and research and development (R&D) expenditures, plays a critical role in the financial performance of manufacturing firms in developing economies. This study examines the relationship between strategic cost management (SCM) practices and firm performance, focusing on Return on Equity (ROE) and Net Profit Margin. Using a comprehensive panel dataset that spans from 2013 to 2023, comprising over 1.1 million firm-year observations from industries such as electronics, automotive, pharmaceutical, textile, and steel, the study employs fixed-effects panel regressions to address firm-level heterogeneity and macroeconomic shocks. Key independent variables include compliance cost intensity and R&D intensity, while control variables such as firm size, market share, and technological readiness are also incorporated. The results reveal that compliance and R&D expenditures have a complex relationship with financial performance: compliance costs show a short-term negative effect on ROE but positively impact Net Profit Margin in the long term. In contrast, R&D intensity negatively impacts ROE but enhances profitability margins, suggesting delayed financial returns from innovation. These findings underscore the importance of strategic SCM investments, especially in highly regulated and innovation-driven sectors. The study offers policy implications for industrial upgrading and guides firms in navigating regulatory costs while fostering innovation.