Quantifying Innovation ROI: A Copula-Based Analysis of Hungarian Enterprises' Financial Performance

Abstract

Investing in innovation is crucial for sustained growth and competitiveness in medium and large enterprises, yet quantifying its financial returns is challenging. This research examines the impact of innovation-related spending on the economic performance of Hungarian businesses from 2010 to 2020. It introduces a novel method to analyse how these investments affect Free Cash Flow to the Firm (FCFF) and proposes a unique approach to estimating the return on investment (ROI) for innovation activities. The copula methodology compares traditional assessments and models that reveal complex dependencies among financial variables. By analysing a comprehensive dataset of corporate balance sheets, this paper provides insights and strategies for effective financial management. The results suggest that strategically modelled innovation investments can enhance long-term economic success and offer better predictive capabilities than traditional methods.