Determinants of industrial innovation in China: Evidence from its recent economic census

This study examines the sources of technological innovation in Chinese industries using the 2004 economic census data. On the one hand, it analyzes the relationships between patent grants and new product sales. On the other hand, it analyzes the relationships among in-house R&D, technology transfer from foreign and Chinese domestic technology markets, spillover effects of foreign investment, as well as export. The study reveals that in-house R&D has become the most important source for industrial innovation in China. In-house technological efforts are critical for developing original innovations as well as for absorbing the technologies transferred from external agencies. However, neither technologies transferred from foreign countries nor those from the domestic technology market are playing significant roles in China’s industrial innovation. The spillover effect of foreign investment on patent grants is strong and significant, though its impact on new product sales is insignificant. Export shows negative, though insignificant, impact on patent grants, but positive, strong, and significant effects on new product development. Overall, the results of this study demonstrate the critical role of in-house R&D in China’s industrial innovation.     

The differential effects of public R&D support on firm R&D: Theory and evidence from multi-country data

This paper aims to evaluate the effects of various forms of public research and development (R&D) support on firms’ incentives to invest in R&D. First, in order to identify potential channels through which public R&D support influences firm R&D, a formal model of firm R&D with public R&D support is developed and analyzed. Four potential channels are identified: the technological-competence-enhancing effect, the demand-creating effect, the R&D-cost-reducing effect and the (project) overlap (or duplication) effect. These multiple channels indicate that it is difficult to evaluate the aggregate effect of public R&D support and that there are differential effects of public R&D support on firm R&D, depending on various firm- or industry-specific characteristics. Second, the differential effects of public R&D support are empirically tested using unique firm-level data for nine industries across six countries. Public support tends to have a complementarity effect on private R&D for firms with low technological competence, for firms in industries with high technological opportunities and for firms facing intense market competition. In contrast, firms with high technological competence and firms that have enjoyed fast demand growth in recent years show a crowding-out effect, and firm size and age do not show any discernible differential effect.     

Real options game models of R&D competition between asymmetric firms with spillovers

Using real options game models, we consider the characterization of strategic equilibria associated with an asymmetric Research and Development (R&D) race between an incumbent firm and an entrant firm in the development of a new innovative product under market and technological uncertainties. The random arrival time of the discovery of the patent protected innovative product is modeled as a Poisson process. Input spillovers on the R&D effort are modeled by the change in the leader’s hazard rate of success of innovation upon the follower’s entry into the R&D race. Asymmetry between the two competing firms include sunk costs of investment, stochastic revenue flow rates generated from the product, and hazard rates of arrival of success of R&D efforts of the two firms. Under asymmetric duopoly, we obtain the complete characterization of the three types of Markov perfect equilibria (sequential leader–follower, preemption and simultaneous entry) of the firms’ optimal R&D entry decisions with respect to various sets of model parameters. Our model shows that under positive input spillover, preemptive equilibrium does not occur in the R&D race due to the presence of dominant second mover advantage. The two firms choose optimally to enter simultaneously if the sunk cost asymmetry is relatively small; otherwise, sequential equilibrium would occur. When the initial hazard rate is low relative to the level of input spillover, simultaneous entry would occur as an optimal decision, signifying another scenario of dominant second mover advantage. On the other hand, when the initial hazard rate is sufficiently high so that the first mover advantage becomes more significant, simultaneous equilibrium does not occur even under high level of positive input spillover.     

Innovation,external technical linkages and small firm commercial performance: an empirical analysis from Western New York

This paper examines the role of external service linkages in the innovation and market peformance of small manufacturing firms (SMFs). Survey data from a technological cross-section of 146 Western New York SMFs are summarized. The data suggest a helpful role for consultants in the product development efforts of innovative firms, especially those that serve foreign export markets. Several multiple discriminant models are presented, each of which suggests an interactive connection between SMF commercial performance, externa) technical links, innovation propensity and in-house R&D. It is argued that innovative SMFs that exploit specialized technical services perform significantly better than comparably sized firms that rely solely on in-house resources. It is also argued that the quality of a region's producer service environment may have a significant bearing on the growth potential of its SMF population. The paper concludes by discussing the main academic and public policy implications that flow from the empirical results.     

R&D and Tobin's q in an emerging financial market: the case of the Athens Stock Exchange

This paper aims at providing further evidence on the consequences of R&D investment on Tobin's q for firms publicly traded in an emerging financial market. Panel data methodology is applied using data for the manufacturing and computer firms listed in the Athens Stock Exchange, a market classified as emerging by the major securities analysts, for the period 1996–2004. The empirical findings show first, that the Greek firms' R&D investment effect on the market value of a firm is consistent with other US and European studies. Second, the impact of the R&D investment on the market value is higher for small firms. The findings of this paper may have significant industrial and technological policy implications for other emerging markets sharing similar characteristics to Greece. Copyright © 2010 John Wiley & Sons, Ltd.     

The effect of R&D novelty and openness decision on firms' catch-up performance: Empirical evidence from China

This paper explores the strategic dimensions of R&D decisions toward novelty and openness in explaining the performance of latecomer firms in a developing economy. A structural equation model of R&D decision-making is formulated using survey data from 279 Chinese firms. The dimension of R&D novelty is defined as the degree of technological newness found in firms' R&D projects, while R&D openness describes the degree to which technologies are acquired from external sources. Our results indicate that firms' R&D decisions regarding novelty and openness are associated with demand opportunities, market competition, technological capability, and external networks. Greater R&D novelty contributes positively to innovative output but does not affect sales growth. Greater R&D openness contributes positively to sales growth but negatively to innovative output.     

Dynamics in research joint ventures and R&D collaborations

We investigate the short- and long-term effects of different types of R&D collaborations on firms, consumers, and the industry. To that end, we consider a differentiated-product market in which firms compete à la Bertrand and invest in process innovation in order to lower the production cost over time. Investments are stochastic and there can be cartelization or competition strategies among firms at the moment of making the decision on the amount to invest in R&D. Our results show that in equilibrium, the long-run welfare is larger under a research joint venture than under other environments. Discounted present value profits increase with the level of the spillover but there are asymmetries that depend on the firms’ asymmetry on marginal costs.     

Capitalizing Research & Development: Signaling or Earnings Management?

This paper analyzes the capitalization of Research & Development (R&D) expenditures under International Financial Reporting Standards (IFRS). Discretionary R&D capitalization can be exercised by managers to signal private information on future economic benefits to the market. It can, however, also serve as opportunistic earnings management. We analyze a unique, hand-collected sample of highly R&D intensive German IFRS firms during 1998–2012. We find that market values are not associated with capitalized R&D for the overall sample, indicating that earnings management may be a concern. We identify firm-years for which R&D capitalization is possibly used for pushing their earnings above a specific threshold (e.g. analysts' forecasted earnings, prior year's earnings). Our results show that both the decision to capitalize and how much to capitalize are strongly associated with benchmark beating. Consistently, we find that market values are negatively associated with capitalized R&D for firms who are likely to use capitalization for benchmark beating (about one third of the overall sample). On the other hand, the market values R&D capitalization positively for well-performing firms, for which capitalizing does not matter to beat an earnings benchmark (about half of the overall sample). This finding is robust to controls for endogeneity, various deflators, and different measures for earnings management.     

Globalisation,industrial diversification and productivity growth in large European R&D companies

This paper aims to assess the impact of both geographic and industrial diversification of economic activities on the productivity performance of large European R&D Multinational Enterprises (MNEs). Based on the worldwide subsidiaries of these firms, we measure the performance of the firms according to their level of industrial diversification and globalisation that we proxy with the presence and importance of subsidiaries in the EU, North America and Asia–Pacific regions. The sample consists of large R&D firms that represent about 80 % of total European R&D. In general, the results indicate a positive impact from globalisation on firms’ R&D productivity, especially in the US, while a negative impact for industrial diversification is found.     

Technology ladders and R&D in dynamic Cournot markets

Motivated by dramatic and unpredictable technological advances in energy production (for instance drilling and extraction of shale oil), we extend Cournot models of competition to incorporate research and development (R&D) that can lead to (stochastic) drops in production costs. Our model combines features of patent racing with dynamic market structure, capturing the interplay between the immediate competition in terms of production rates and the long-term competition in R&D. The resulting Markov Nash equilibrium is found from a sequence of one-step static games arising between R&D successes, and several numerical examples and extensive analysis of the emerging comparative statics are presented. Analyzing the relationship between current market dominance and the level of R&D investments, we find that market leaders tend to invest more, which in some sense makes oligopoly dynamically unstable. We show that anticipated market transitions have long-term impact; for example the potential of future monopoly can spur R&D investment now, even if the firm is presently uncompetitive and not actively producing. We also show that, surprisingly, random innovations have an ambiguous effect on R&D. This feature, which is driven by the Cournot framework, contrasts with the common situation whereby uncertainty lowers innovation and delays R&D investments. Finally, we demonstrate that increased competition may actually increase efforts to innovate through higher desire to achieve dominance. This would match the anecdotal evidence that the threat of market entrants forces incumbents to maintain high R&D.     

Favorable strategies for the success of entry into new technological areas: an entrepreneurial perspective

This study considers the act of entering into new technological domains for R&D purposes as one of the most intense entrepreneurial activities within large established firms, referring to it as R&D entrepreneurship. Attempting to detect factors that could strengthen (or weaken) the impact of R&D entrepreneurship on innovation performance, I examine the moderating role of three important R&D strategies, namely the knowledge plurality, internal focus, and R&D collaboration. I empirically test the hypotheses developed in this study on secondary, longitudinal economic and patent data from a sample of 139 firms from the industries of pharmaceuticals, biotechnology, and chemicals for a 7-year period, using fixed-effects negative binomial regression models. Findings support that the relationship between R&D entrepreneurship and innovation performance is positively moderated by knowledge plurality but negatively by internal focus and R&D collaboration.

     

Technology sourcing and outward FDI: A study of IT industry in India

Dunning’s eclectic or the OLI framework suggests that MNCs exist and grow due to possession of ownership (O) advantages consisting of the tangible and intangible assets of the firm (including technology); location (L) advantages consisting of production factors such as transportation, infrastructure, and human and natural resources available in the host country; and internalisation (I) advantages owing to firm’s competitive advantage in producing internally rather than selling or licensing technologies to others. There are several studies that have analysed MNCs of developed country origin from the perspective of both developed (home) and other developed or developing (host) countries. Recently, however, MNCs from developing countries are also making their presence felt in the world. Yet, there are hardly any studies that analyse MNCs of developing country origin.Using data on 130 firms from the high-tech Information Technology (IT) industry of India, we investigate whether ownership advantages (O), as proposed in the eclectic theory, holds true for the presence of MNCs from developing countries. Specifically, we analyse whether firm-specific technological advantages generated through differential technology sourcing at home (India) are important in determining inter-firm differences in the decision to invest abroad. The technological sources considered are in-house R&D efforts, import of designs, drawing and blueprints, and import of capital goods. The study reveals that in-house R&D efforts are indeed important for the firms to invest abroad. Size and export intensity of the firm also influence the decision of the firm to invest abroad. The study recommends a proper innovation and resource management strategy for developing country firms for efficient allocation of resources, technology sourcing, and technology assimilation.     

Is R&D spending influenced by disinvestment and local political corruption? The case of Indian central public sector enterprises

The current study examines the effect of disinvestment (dilution of state ownership) and local political corruption on R&D spending in enterprises owned by the central government of India. Based on certain characteristic features of innovation as a strategy available to state-owned enterprises, I build two sets of hypotheses formalising the channels of how these variables may affect the possibility and amount of R&D. Data is drawn from multiple sources to compile a dataset that covers all manufacturing central government-owned enterprises in India over a period of ten years from 2007 to 2016. The study employs an instrumental variable technique to reduce the endogeneity between disinvestment and R&D decisions. We find that, while disinvestment and local political corruption have strong negative effects on whether a firm invests in R&D or not, it has no effect on the amount of R&D. In fact, the amount is driven by a host of firm-specific factors such as size, profit and proficiency of the share of skilled labor, managerial strength and non-unionisation of labor. We also find that the effects are strongly driven by the size of firms, special status awarded to firms and the ideology of the state where the enterprise operates.     

Input/output ranges and performance: an examination of US machine tool producers

Despite the establishment of high-tech multinational enterprises (MNEs) in Ireland since the late 1950s, the country did not succeed in closing the technological gap with most of its EU counterparts. The weak National System of Innovation (NSI), and in particular low business and government R&D levels, combined with a lack of research and technology linkages between MNEs and indigenous firms, explain these poor results. However, the Shannon region in the West of the country presents some specific institutional characteristics that could theoretically make the region a strong technological enclave. The various actors in the region - i.e. the administrative, financial, political and research institutions, as well as the business organizations - have indeed infused a new type of economic development. After a brief review of the available concepts and models articulated around these actors and their interrelationships, the paper analyses whether the Shannon region, taken as an illustrative example, mirrors a specific economic and technological localized setting. The study is based on a survey of indigenous and foreign firms.     

Value and risk dynamics over the innovation cycle

This paper studies investment in intellectual capital and corresponding value and risk dynamics over the innovation cycle. We assume that the innovation cycle consists of three phases, R&D, trial, and market introduction phases. We use a real option investment model to characterize firm value and risk dynamics over the innovation cycle and find that firm value is the sum of the value of assets in place and non-linear option values related to breakthrough, exit, and market introduction options. Firm risk over the innovation cycle is highly non-linear and quite distinct in different phases. During the R&D phase risk is high as the firm faces high operating leverage originating from R&D fixed costs together with technological uncertainty. During the trial phase risk is significantly lower and dominated by option risk to launch the product in the market while after the introduction of the product in the market risk is equivalent to the asset risk of the company. Our model is consistent with the view that positive excess returns of R&D intensive firms are a compensation for risk. Based on this insight we derive several testable predictions.     

Managerial overconfidence,overinvestment, and R&D spillover

This paper examines whether a firm will select an overoptimistic manager when a cost‐reduction investment has a spillover effect. We consider a Cournot competition model where R&D investment ex ante occurs before the process of product market competition. Our analysis reveals that there exists a unique and symmetric equilibrium for firms to delegate overoptimistic managers. We show that only when the spillover effect is sufficiently high do firms benefit from delegation. Furthermore, the equilibrium confidence level and investment decision first decrease and then increase as the spillover parameter changes. As the initial production cost increases, the equilibrium performance becomes worse.     

Building absorptive capacity to organise inbound open innovation in traditional industries

The discussion on open innovation suggests that the ability to absorb external knowledge has become a major driver for competition. For R&D intensive large firms, the concept of open innovation in relation to absorptive capacity is relatively well understood. Little attention has; however, been paid to how both small firms and firms, which operate in traditional sectors, engage in open innovation activities. The latter two categories of firms often dispose of no, or at most a relatively low level of, absorptive capacity. Open innovation has two faces. In the case of inbound open innovation, companies screen their environment to search for technology and knowledge and do not exclusively rely on in-house R&D. A key pre-condition is that firms dispose of “absorptive capacity” to internalise external knowledge. SMEs and firms in traditional industries might need assistance in building absorptive capacity. This paper focuses on the role of collective research centres in building absorptive capacity at the inter-organisational level. In order to do so, primary data was collected through interviews with CEOs of these technology intermediaries and their member firms and analysed in combination with secondary data. The technology intermediaries discussed are created to help firms to take advantage of technological developments. The paper demonstrates that the openness of the innovation process forces firms lacking absorptive capacity to search for alternative ways to engage in inbound open innovation. The paper highlights the multiple activities of which absorptive capacity in intermediaries is made up; defines the concept of absorptive capacity as a pre-condition to open innovation; and demonstrates how firms lacking absorptive capacity collectively cope with distributed knowledge and innovation.     

Cooperative R&D ventures: Strategic behavior versus transactional efficiency

This paper examines a sample of 48 cooperative R&D ventures announced in the period 1983–1990 to determine their impact on the stock price of the announcing firms. It finds that the venturing firms earn statistically significant positive abnormal returns over periods surrounding the announcement date. These gains are greater than those that result from announcements of increases in expenditures on in-house R&D. The cross-sectional analysis reveals that abnormal returns to the venturing firms are independent of industry concentration, larger in international ventures than in domestic ventures, and equal in cooperative agreements and equity joint ventures. These results support the transactional efficiency perspective of cooperative R&D ventures and suggest that the relaxation of antitrust laws as they apply to cooperative R&D ventures in 1984 is a welfare-improving policy.     

How do firm characteristics affect behavioural additionalities of public R&D subsidies? Evidence for the Austrian transport sector

Interest of STI policies to influence the innovation behaviour of firms has been increased considerably. This gives rise to the notion of behavioural additionality, broadening traditional evaluation concepts of input and output additionality. Though there is empirical work measuring behavioural additionalities, we know little about what role distinct firm characteristics play for their occurrence. The objective is to estimate how distinct firm characteristics influence the realisation of behavioural additionalities. We use survey data on 155 firms, considering the behavioural additionalities stimulated by the Austrian R&D funding scheme in the field of intelligent transport systems in 2006. We focus on three different forms of behavioural additionality—project additionality, scale additionality and cooperation additionality—and employ binary regression models to address this question. Results indicate that R&D related firm characteristics significantly affect the realisation of behavioural additionality. R&D intensive firms are less likely to substantiate behavioural additionalities, while small, young and technologically specialised firms more likely realise behavioural additionalities. From a policy perspective, it may be concluded that direct R&D promotion of firms with a high R&D intensity may be misallocated. Attention of public support should be shifted to smaller, technologically specialised firms with lower R&D experience. The findings deliver important insights into interactions of public R&D support and R&D behaviour of firms operating in the Austrian transport sector, bearing significant implications for future policy designs.     

How does R&D intensity influence firm explorativeness? Evidence of R&D active firms in four advanced countries

Despite R&D is seen as a starting point of innovation, firms usually confront a trade-off in allocating limited R&D resources to either exploratory or exploitative activities. Relative to the latter, the former produces a more distinctive variation from the prior knowledge base and helps the firm tap into new opportunity. Given the increasing importance of firm explorativeness in the fast changing environments, the influence of R&D investment on firm explorativeness is not yet conclusive in the literature, not to mention whether the increased R&D investment induces firms to become more explorative. This study aims to generate insight into how and when firm explorativeness is determined by their R&D intensity. As a notion of the use of knowledge new to the organization, firm explorativeness is treated as the degree of using knowledge new to the organization in the pursuit of innovation. Based on a panel data of 1267 firm-year observations in four advanced countries during 1999–2003, the results reveal that a higher level of R&D intensity makes firms more exploitative and less explorative. Nevertheless, the negative relationship between R&D intensity and firm explorativeness is found to be alleviated in the presence of technological opportunity or financial slack. The configurational model sheds further light on the combined and relative weight of two moderators.