Mergers and product quality: Evidence from the airline industry

Retrospective studies of horizontal mergers have focused on their price effects, leaving the important question of how mergers affect product quality largely unanswered. This paper empirically investigates this issue for two recent airline mergers. Consistent with the theory that mergers facilitate coordination but diminish competitive pressure for quality improvement, we find that each merger is associated with a quality decrease (increase) in markets where the merging firms had (had no) pre-merger competition with each other, and the quality change can have a U-shaped relationship with pre-merger competition intensity. Consumer gains/losses associated with quality changes, which we monetize, are substantial.     

Firm profitability,growth, and innovation

A new data base measuring company-level innovative activity is used to test how firm growth, profitability, size, and R&D intensity influence subsequent innovative activity. While R&D intensity is found to promote subsequent innovations, and smaller firms are identified as being more conducive to innovation activity than are larger firms, we find that the effect of company growth and profitability on subsequent innovation depends on the technological-opportunity environment. Profitability is found to promote subsequent innovative activity for firms in high-technological-opportunity industries but not in low-technological-opportunity industries. By contrast, high growth generates more innovative activity for firms in low-technological-opportunity industries, but not in high-technological-opportunity environments.     

Doing R&D and/or Importing Technologies: The Critical Importance of Firm Size in Taiwan’s Manufacturing Industries

We analyze the relationship between firm size and innovation inputs in Taiwan. Two inputs are considered: R&D and technology imports. Building on an existing theoretical framework, we test this relationship by estimating bivariate Tobit models in twenty 2-digit industries, using a panel of 27,754 firms observed from 1992 to 1995. We find that, in all industries, R&D intensity and/or technology imports intensity depend strongly on firm size, following an “inverted-U” pattern. Moreover, we find that most industries are only “mildly Schumpeterian”. Finally, our results provide some empirical evidence for complementarity between R&D and technology imports in the innovation process.     

How does the partner type in R&D alliances impact technological innovation performance? A study on the Korean biotechnology industry

The number of strategic alliances for R&D activities in the biotechnology industry is sharply increasing. Some studies show that each alliance partner type has different alliance motives, resources and capabilities, organizational structures and cultures, and degrees of competition with partners, which can lead to different performances of strategic alliances. In this regard, this study conducts an empirical analysis of the different impact of each type of alliance partner on technological innovation performance and finds the moderating effect of absorptive capacity and potential competition by categorizing strategic alliances for R&D activities in the biotechnology industry into three types: vertical-downstream alliances, vertical-upstream alliances, and horizontal alliances. This study analyzed 206 Korean biotechnology firms and their strategic alliances for a total of 292 R&D activities. The results of the analysis showed that vertical alliances have a positive impact on technological innovation performance, while horizontal alliances have an inverted U-shaped relationship with technological innovation performance caused by the effect of competition. Additionally, it was confirmed that the R&D intensity of biotechnology firms has a moderating effect of increasing the impact of vertical-upstream alliances on technological innovation performance.     

The impact of FDI through mergers and acquisitions on innovation in target firms

This paper analyzes the effects of cross-border mergers and acquisitions on innovation activities in target firms. The empirical analysis is based on survey and ownership data for a large sample of small- and medium-sized German firms. After controlling for endogeneity and selection bias, we find that foreign acquisitions have a large negative impact on the propensity to perform innovation activities and a negative impact on average R&D expenditures in innovative firms. Furthermore, innovation output, measured as product and process innovations, and the share of sales from product innovations, is not significantly affected by a foreign acquisition for a given amount of innovation efforts. Hence, the estimation results do not provide any evidence of significant technology transfer through foreign acquisitions in form of a higher innovation success.     

Vertical integration and innovation

Innovation is a driving force for most industries, where it moreover affects many stages of the vertical chain. We study the impact of vertical integration on innovation in an industry where firms need to undertake risky R&D investments at both production and distribution stages. Vertical integration brings better coordination within the integrated firm, which boosts its investment incentive at both upstream and downstream levels. However, it is only mutually beneficial for firms to integrate when both upstream and downstream innovations are important. When innovation is irrelevant at one level, firms favor instead vertical separation. The analysis provides insights for the wave of mergers and R&D outsourcing observed in the pharmaceutical industry and other vertically related industries.     

Declared essential patents and average total R&D expenditures per patent family

The sharp increase in SEP declarations and declaring firms emphasizes the necessity for understanding firms’ innovation investment behavior in standardization. This paper empirically investigates whether declared standard-essential patents (SEPs) and the declaring firm’s business model (operationalized as a firm’s location in the value chain) are associated with a firm’s innovation investment behavior. To this end, we measure firms’ innovation investment behavior through average total research and development (R&D) expenditures per filed patent family for publicly listed firms from 1999 to 2018. Our sample mainly includes major SEP family declarants. We rely on a binary business model taxonomy differentiating upstream and downstream firms. Within that setting, total R&D expenditures rise with increasing fragmentation of declared SEP families, suggesting that firms adjust their R&D investments to declaration developments in standard-setting organizations (SSOs). We also show that upstream firms have significantly lower total R&D expenditures than downstream firms, which could indicate structural differences in their intellectual property (IP) and R&D management processes. Our results can help SSOs and regulators better understand firms’ innovation investment behavior.     

The path of R&D efficiency over time

In this paper we investigate the pattern of R&D efficiency in terms of the number of product innovations achieved by firms over time. Using a panel dataset of Spanish manufacturing firms for the period 1990–2006, we follow the innovative performance of R&D active firms and observe that innovation rates change over firms' R&D histories. To explain these facts we propose a model that explicitly acknowledges the twofold composition of firms' R&D expenditures, comprising spending on both physical capital for R&D projects and payments to researchers. We regard this latter component of R&D as a source for dynamic returns to firms' R&D investments. Consequently firms' innovation outcomes clearly depend on how long they have been investing in R&D and also on whether there have been any interruptions in the temporal sequence of R&D activities. Our results suggest that R&D activities exhibit dynamic returns that are positive but at a decreasing rate, and that interruptions in R&D engagement reduce R&D efficiency.     

Make,buy, organize: The interplay between research,external knowledge,and firm structure

We bridge current streams of innovation research to explore the interplay between R&D, external knowledge, and organizational structure—three elements of a firm's innovation strategy, which we argue should logically be studied together. Using within‐firm patent assignment patterns, we develop a novel measure of structure for a large sample of American firms. We find that centralized firms invest more in research, and patent more per R&D dollar, than decentralized firms. Both types access technology via mergers and acquisitions, but their acquisitions differ in terms of frequency, size, and integration. Consistent with our framework, their sources of value creation differ: while centralized firms derive more value from internal R&D, decentralized firms rely more on external knowledge. We discuss how these findings should stimulate more integrative work on theories of innovation. Copyright © 2013 John Wiley & Sons, Ltd.     

Non‐R&D innovation and firms’ new product performance: the joint moderating effect of R&D intensity and network embeddedness

Non‐R&D innovation increasingly plays a critical role in explaining firms’ new product performance. Yet, there has been little research on the consequences and contingent mechanisms of non‐R&D innovation for firms embedded in collaborative network environments. To address this research gap, we investigated a conceptual framework of non‐R&D innovation using data drawn from Chinese manufacturing firms. First, we found that non‐R&D innovation positively affects firms’ new product performance. Second, we discovered that high R&D intensity positively strengthens the impact of firms’ non‐R&D innovation on new product performance. Third, we provided critical analysis of the role of non‐R&D innovation in promoting new product performance, accomplished by enhancing R&D investment while simultaneously improving the degree of network embeddedness. Our findings extend both the non‐R&D innovation literature and open innovation literature while providing managers with several key recommendations.     

Does R&D intensity promote the adoption of circular supply chain management? Evidence from China

This paper explores the relationship between research and development (R&D) intensity and circular supply chain management (CSCM) adoption of high-tech manufacturing companies in China to deepen our understanding of how to improve CSCM adoption in emerging economies. In particular, we examine the moderating effect of three kinds of institutional pressures (i.e., regulatory pressure from governmental regulations, mimetic pressure from industry competition, and normative pressure from overseas customer demand) from the perspective of institutional theory. Based on the panel data of 310 Chinese listed companies from 2006 to 2019, we find that R&D intensity positively affects firms’ CSCM adoption. We further observe that this positive effect is strengthened when the ratio of state-owned shares or the degree of industry competition is higher. However, overseas operating income does not affect the impact of R&D intensity on CSCM adoption. Our study contributes to the literature on the innovation – circular economy debate, confirming the positive effect of R&D intensity on firms' CSCM adoption, and provides insights into moderating effects on this relationship in an emerging economy context.     

R&D Partnerships and Innovation Performance: Can There Be too Much of a Good Thing?

R&D collaboration facilitates the pooling of complementary skills, learning from the partner as well as the sharing of risks and costs. Research therefore stresses the positive relationship between collaborative R&D and innovation performance. Fewer studies address the potential drawbacks of collaborative R&D. Collaborative R&D comes at the cost of coordination and monitoring, requires knowledge disclosure, and involves the risk of opportunistic behavior by the partners. Thus, while for lower collaboration intensities the net gains can be high, costs may start to outweigh benefits if firms perform a higher share of their innovation projects collaboratively. For a sample of 2735 firms located in Germany and active in a broad range of manufacturing and service sectors, this study finds that increasing the share of collaborative R&D projects in total R&D projects is associated with a higher probability of product innovation and with a higher market success of new products. While this confirms previous findings on the gains for innovation performance, the results also show that collaboration has decreasing and even negative returns on product innovation if its intensity increases above a certain threshold. Thus, the relationship between collaboration intensity and innovation follows an inverted‐U shape and, on average, costs start to outweigh benefits if a firm pursues more than about two‐thirds of its R&D projects in collaboration. This result is robust to conditioning market success to the introduction of new products and to accounting for the selection into collaborating. This threshold is, however, contingent on firm characteristics. Smaller and younger as well as resource‐constrained firms benefit from relatively higher collaboration intensities. For firms with higher collaboration complexities in terms of different partners and different stages of the R&D process at which collaboration takes place, returns start to decrease already at lower collaboration intensities.     

How do dynamic capabilities transform external technologies into firms’ renewed technological resources? – A mediation model

How externally acquired resources may become valuable, rare, hard-to-imitate, and non-substitute resource bundles through the development of dynamic capabilities? This study proposes and tests a mediation model of how firms’ internal technological diversification and R&D, as two distinctive microfoundations of dynamic technological capabilities, mediate the relationship between external technology breadth and firms’ technological innovation performance, based on the resource-based view and dynamic capability view. Using a sample of listed Chinese licensee firms, we find that firms must broadly explore external technologies to ignite the dynamism in internal technological diversity and in-house R&D, which play their crucial roles differently to transform and reconfigure firms’ technological resources.     

Modeling the firm's response to research & development tax credit policies

In this article, we develop a microeconomic model of normative firm behavior under the incentive of a research and development (R&D) tax credit. The model is based on the well-known concept of a two-factor learning model in which R&D expenditures and manufacturing capacity expansion are the principle determinants of cost reduction in a new technology product. We distinguish between the behavior of start-up firms and ongoing firms and study the potential impacts of progressively larger R&D tax credits. We find highly significant differences in the potential impact of the credit on start-up firms versus ongoing firms. We also find that the credit can significantly impact optimal product pricing of the technology when introduced into the marketplace. We examine the implications of this latter fact on the overall social cost of the R&D tax credit.     

R&D competition versus R&D cooperation in oligopolistic markets with evolving structure

This paper considers investment behavior of duopolistic firms subject to technological progress. It is assumed that initially both firms offer a homogeneous product, but after a stochastic waiting time they are able to implement a product innovation. Production capacities of both firms are product specific. It is shown that firms anticipate a future product innovation by under-investing (if the new product is a substitute to the established product) and higher profits, and over-investing (in case of complements) and lower profits, compared to the corresponding standard capital accumulation game. This anticipation effect is stronger in the case of R&D cooperation. Furthermore, since due to R&D cooperation firms introduce the new product at the same time, this leads to intensified competition and lower firm profits right after the new product has been introduced. In addition, we show that under R&D competition the firm that innovates first, overshoots in new-product capacity buildup in order to exploit its temporary monopoly position. Taking into account all these effects, the result is that, if the new product is neither a close substitute nor a strong complement of the established product, positive synergy effects in R&D cooperation are necessary to make it more profitable for firms than R&D competition.     

Does business group affiliation encourage R&D activities? Evidence from India

The decision to undertake investment in innovative activities is an important strategic choice made by firms. This study investigates the relationship between business group (BG) affiliation and research & development (R&D) activities of Indian firms. Using an empirical approach that accounts for endogeneity and selection bias, we observe that BG affiliation has significant positive influence on the sample firms’ R&D activities. Employing various proxies for institutional development, we show that the effect of BG affiliation on R&D declines with the improvements in institutional and regulatory mechanisms. Further, this study explores the linkages between diversification strategies at the group level and R&D investments by firms affiliated with BGs. Results show that degree of related diversification is positively associated with the affiliates’ innovation efforts.     

R&D and product obsolescence

Claims of planned obsolescence have often been made by various consumer groups. Bulow (1986) examined a monopolist's choice of product durability and found that firms who sell their products tend to choose lower durability levels than firms that rent. We argue that the speed of new product development may be a more appropriate proxy for obsolescence than is durability. Reformulating Bulow's model in terms of R&D choice rather than durability choice, we find that sales firms engage in higher levels of R&D than do rental firms. Additionally, we provide an empirical example using data from the copier and computer industries which also suggests a strong positive relationship between the R&D intensity of a firm and the proportion of output sold versus rented.     

How to leverage the impact of R&D on product innovation? The moderating effect of management innovation

Although research and development (R&D) is a key indicator of (technological) innovation, scholars have found mixed results regarding its effect on product innovation and firm performance. In this paper, we claim that variations in R&D effectiveness can be explained by changes in a firm’s social system, in particular in its management innovation. It is still unclear how management innovation influences R&D effectiveness in terms of product innovation. In this study, we address this theoretical and empirical gap in the innovation literature. Our theoretical arguments and findings from a large-scale survey among Dutch firms show that R&D has a decreasingly positive relationship with product innovation, particularly for firms with low levels of management innovation. However, in firms with high levels of management innovation, this relationship becomes more J-shaped, especially in small and medium-sized firms. Our findings also appear to indicate that management innovation may be more important for competitive advantage than just R&D. Overall, our insights reveal that management innovation is a key moderator in explaining firms’ effectiveness in transforming R&D into successful product innovation.     

Multinationals and the globalization of R&D

In this paper we consider how the location, organization and output of knowledge production evolve within domestic firms following acquisition-FDI in order to understand the aggregate effect on an index of domestically produced innovations. We find strong differences according to how close the acquiring MNE is to the technologically frontier. Frontier MNEs are more likely to close R&D activities in acquired affiliates, but when they are retained they expand employment of high-skilled R&D workers and transfer R&D knowledge. Non-frontier MNEs make fewer changes to R&D. Overall the effect of acquisition-FDI on the domestic innovation index is positive.     

Innovation,R&D productivity,and global market share in the pharmaceutical industry

In this paper, we estimate two empirical models using a pooled, cross-section sample of international pharmaceutical firms for the period 1987 to 1989. The first model tests the relationship between R&D productivity and a vector of firm-specific characteristics. The second model tests the determinants of global market share. The empirical analysis reveals three findings. First, we find evidence that there are diminishing returns in the pharmaceutical R&D process. Second, we find that firm size has a positive effect on average R&D productivity and a positive impact on the marginal R&D productivity for plausible R&D staff sizes. And third, we find evidence that R&D productivity and the number of sales employees have a positive effect on the firm's global market share.The views presented in this paper reflect those of the authors and do not necessarily reflect the views of the U.S. International Trade Commission or any of its individual commissioners. We thank William Comanor, Daniel Gropper, Daniel Hamermesh, Susan Pozo, Paul Thistle, and Mark Wheeler for their comments and suggestions on an earlier draft of this paper. We assume all responsibility for any errors contained herein.