The Determinants of R & D Expenditures: A Study of the Canadian Biotechnology Industry

The relative importance of a multitude of factors forthe allocation of expenses towards R & D are assessedin an empirical study of the Canadian biotechnologyindustry. The results show that patent protection andstrategic alliances facilitate R & D spending. Theresults also show that early-stage firms spend agreater proportion of the expenditures on R & D, whilefirms engaged in R & D in platform technologies andfirms with high debt-equity ratios spend a lowerproportion of their expenditures on R & D. Demand pulland competition variables are insignificant factors. Finally, counter to our expectations, R & Dexpenditures are more intensive among firms engaged inR & D in areas in which consumer controversies are morepronounced.     

Cooperative R&D and the Value of the Firm

In this paper, we investigate the stock price responses of listed firms in the U.S. markets to announcements of R & D collaborations. We find that abnormal returns of stocks are significantly positive after R & D collaborations are announced. The positive stock price response towards the R & D cooperation initiations can be partially explained by the nature of the collaborations and the characteristics of the participating firms. We also find that the stock prices of rival firms respond negatively to announcements of R & D cooperation. This result seems to support the hypothesis that cooperative R & D improves economic efficiency of the cooperative firms that gain competitive advantage. We do not find evidence supporting the hypothesis that R & D cooperation creates collusive, anticompetitive effects in the product market.     

Firm Density and Industry R & D Intensity: Theory and Evidence

By deriving a formal model of industry R & D that identifies factors influencing industry R & D intensity, this paper first suggests firm density, defined as the inverse of average firm sales or simply the number of firms divided by industry sales, as a measure of market structure that is appropriate in explaining industry R & D intensity. The model shows that the cost structure of R & D, consumer preference over quality and price, the appropriability of R & D, firm density, and the average level of firm R & D intensity jointly determine industry R & D intensity. In particular, firm density has a positive relationship with industry R & D intensity, implying that firms in higher firm-density industries feel fiercer competitive pressure and thus engage more intensively in R & D. An empirical analysis of panel data on industry R & D activities of Korean manufacturing industries during the period 1991–1996 provides supportive evidence for the predictions of the model including the positive relationship between firm density and industry R & D intensity. The theoretical model and the empirical results are also consistent with the recent survey of U.S. corporate R & D activities by the U.S. Department of Commerce and the National Science Foundation (1999).     

Product Innovation,Process Innovation,and Size

We test the hypothesis that large firms devote a higher proportion of their research and development (R & D) expenditure on process innovation thansmaller firms. According to the estimates, process- and product R & D expenditure rise less than in proportion to size. The size effect is somewhat stronger for process R & D but the difference to product R & D is in no way dramatic. This difference with regard to size elasticity of process- and product R & D is somewhat more pronounced when accounting for possible interrelationships between expenditure on process- and product R & D but remains statistically non-significant.     

大型研发企业的研发投入分析——基于全球前2000家企业研发投入数据

利用2006年全球研发投入居前2000位的企业数据,考察了这些企业研发投入的一些基本特征,如产业分布、国家分布,以及研发的集中度,并探讨了企业研发投入与企业规模之间的关系。研究结论是：研发具有产业异质性;研发在一些国家集中;企业研发的总量水平、研发比率、研发增长率与企业规模具有非线性关系．中型企业具有较高的研发投入量,而小型企业与大型企业具有较高有研发投入比,以及研发增长率。     

Effects of R & D Spillovers on the Profitability of Firms

This cross-section study of a sample of 278 firms from the COMPUSTAT II database explores the relationship between a firm's profitability and other variables, notably its own R & D capital, knowledge and market spillovers and appropriability. The proxy for knowledge spillovers is based on technological distance. Market spillovers are based on a patent input-output matrix. Both spillover proxies combine information on R & D expenditures and patent counts.The results do not reject the hypothesis that R & D has a direct, positive effect on profitability, especially in industries with effective patent protection. Information spillovers affect profits negatively, market spillovers positively.     

Private and social incentives to form R & D joint ventures

R & D patent pools induce individual firms to reduce investment in R & D, but are socially beneficial because they ensure greater competition in the post-innovation market. It is not usually optimal for all firms to combine in a single cooperative R & D venture. If R & D combinations are formed voluntarily by firms that seek to maximize their expected value, they will not, in general, adopt the socially optimal structure of R & D joint ventures.     

Is R & D Financially Constrained? Theory and Evidence from Irish Manufacturing

We re-examine the effects of liquidity constraints on R & D investment. Inour theoretical section we extend the neoclassical framework of investmentin physical capital by introducing R & D and liquidity constraints. Weanalyse this issue empirically using firm-level data for R & D activemanufacturing firms in the Republic of Ireland. Our results provide evidencethat suggests that R & D investment is financially constrained. This is inline with previous studies of U.S. firms.     

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.     

A Note on Endogenous Spillovers in a Non-Tournament R & D Duopoly

The paper analyzes a simple non-tournament model of R & D where firms are engaged in cost-reducing innovation. It is shown that when spillovers of information are treated as endogenous firms never disclose any of their information when choosing their R & D non-cooperatively. Under cooperative R & D, firms will always choose to fully share their information, i.e., a research joint venture will operate with a maximal spillover value.     

Management Control and Innovative Activity

This paper discusses theoretically the different incentives of managers versus firm owners to invest in innovative activities. There are opposing effects concerning R & D intensity in the manager-controlled firm. Our study on the determinants of R & D intensity presentsempirical results concerning this question. A sample of German firms with 4,126 observations is used to estimate Tobit and semiparametriccensored least absolute deviation (CLAD) models. It turns out that the owner-led firms invest less into R & D than the managerial firms. With respect to the manager-ledfirms, we have mixed results concerning the question whether expenditures on R & Ddepend on the control exerted.     

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,Foreign Direct Investment and Technology Sourcing?

The U.S. experienced a surge in foreign directinvestment (FDI) during the 1980s.To date, we do notfully understand what the research and development(R & D) effects of FDI are. FDI can affect the hostcountry's R & D activities in at least two ways. First,if domestic firms perceive foreign entrants as seriousthreats to their domestic market share, they willchange their R & D policies hence industry-wide R & Dintensity also changes. Second, the increase in R & Dintensity may be attributed to foreign firms' R & Dactivities to acclimatize to U.S. conditions. Using apanel of 4-digit SIC industries from 1981–91, there issome evidence that the latter scenario may be apossible explanation for the observed changes inindustry-wide R & D intensity.     

Passing the food and agricultural R&D buck? The United States and China

The global geographical balance of food and agricultural R&D spending is shifting, characterized by a declining U.S. share and a rising middle-income-country share, propelled heavily by the rapid rise of spending in China. Based on our newly compiled data, we estimate that China now outspends the United States on both public and private food and agricultural research on a purchasing power parity basis. The public-private orientation of the research has also changed markedly, with the private sector now accounting for around two-thirds of the food and agricultural R&D spending total in both China and the United States. Our estimates indicate that China’s private sector tilts heavily towards post-farm R&D activities, whereas the U.S. private sector is split more evenly between on-farm and post-farm spending. While the intensity of Chinese investment in food and agricultural R&D (relative to agricultural GDP) is beginning to grow, it still lags well behind the food and agricultural R&D investment intensities of the United States and other higher-income Asian countries (e.g., Japan and South Korea). The development regularities we reveal in the longer-run trends are indicative of future R&D investment patterns with potentially profound long-run implications for the size, shape and accessibility of the global stocks of scientific knowledge that underpin food and agricultural sectors worldwide.     

Why Do Established Firms Enter Some Industries and Exit Others? Empirical Evidence on Italian Business Groups

In this paper the determinants of entry and exitdecisions are analysed empirically on a sample of wellestablished business groups operating in Italianmanufacturing. The focus is on the role of sunk costsas entry barriers. Two competing hypotheses aretested. On the one hand, setup costs, R & D andadvertising outlays act as barriers to entry for bothnew and already established firms because of theirindustry-specific commitment value. On the other hand,they may induce established firms, which operate insimilar industries, to enter. This is the case if R & Dand advertising are firm-specific investments whichgenerate externalities to be efficiently exploited inadjacent industries. Overall results suggest that thesecond hypothesis gives a better picture of thebehaviour of our sample of firms.     

Getting the most out of cross-functional cooperation: Internal structural change as a trigger for customer information use

Using customer information in the decision making of R&D and production is vital for industrial firms to survive and prosper in an increasingly competitive marketplace. Previous studies show that cross-functional cooperation may have both negative and positive effects on information use. The authors hypothesize that internal structural change positively moderates the relationship between cross-functional cooperation and information use. However, structural change also decreases the quality of cross-functional cooperation. Cross-functional knowledge increases both cross-functional cooperation and customer information use. These hypotheses are tested and supported using a data set consisting of 221 manufacturing and R&D managers in large industrial firms. The findings imply that although internal structural change increases the benefits of cooperative, cross-functional relationships in terms of customer information use, managers in volatile organizations should continue to strengthen cooperative relationships by maintaining and improving sales and marketing contact people's knowledge of manufacturing and R&D.     

Market share,advertising, R&D,and profitability: An empirical analysis of leading industrial firms in Japan

This paper develops a dynamic model of a leader firm which chooses the time paths of R&D and advertising inputs so as to maximize the present value of expected profits. From this theoretical model simultaneous-equations system for market share, advertising, R&D, and profitability is derived and estimated using the data on the leading industrial firms in Japan. Our results show that, as far as top firms are concerned, market share and demand growth have significant positive effects on profitability, and an increase in the stock of goodwill increases market share as well as profitability.This study was financially supported by the Ministry of Education in Japan. Helpful comments were provided by H. Odagiri. Also I am indebted to an anonymous referee for advice and criticism on various points.     

Reconciling the paradox of supply-side and demand-side strategies in industrial innovation

Abernathy and Utterback [Abernathy, W.J. & Utterback, J.M., (1978). Patterns of industrial innovation. In Burgelman, R.A., Maidique, M.A. and Wheelwright, S.C., Strategic management of technology and innovation: 149-155. McGraw Hill.] argued that successful firms seek a functional product performance strategy in the early stage of industrial innovation and seek a cost reduction strategy in the late stage. However, Adner and Levinthal [Adner, R. & Levinthal, D., (2001). Demand heterogeneity and technology evolution: Implications for product and process. Management Science, 47(5), 611-628.] argued firms enhance functionality or reduce prices to a level that corresponds to consumer willingness to pay in the early stage, and increase performance at a relatively stable product price (i.e. new strategy they claimed) in the late stage. This study reconciles this paradox of choosing strategies using an integrative framework for theory development. Generated from the framework, a numerical indicator of performance/cost ratio directs firm strategy choices in industrial innovation when an environment changes. This study justifies the popular use of performance/cost ratio in practices as primary criteria to predict the winning dominant standard from a value creation perspective and elucidates an evolution of industrial innovations by using a three-year field study.     

The Determinants of Pharmaceutical R&D Expenditures: Evidence from Japan

During the past 20 years, the world pharmaceutical industry has experienced a dramatic increase in R&D intensity. We apply and extend a model developed by Grabowski and Vernon (2000, Journal of Evolutionary Economics, 10, 201–215) with a pooled data sample of the 15 publicly listed Japanese drug firms for the period 1987–1998. As in the original study, we find expected returns to be an important determinant of R&D spending in the Japanese drug industry, albeit considerably smaller than in the U.S., which is particularly obvious in the case of returns from newly introduced drugs. However, our results are sensitive to econometric model specification, in particular to controlling for serial correlation and to a dynamic specification of the baseline model. Likewise, estimates on financial constraints are sensitive to model specification, indicating that Japanese drug firms face small or no financial constraints. Our results are consistent with the general literature on R&D investment behaviour, yet raise some methodological questions with regard to the original study.     

Is R&D risky?

Research summary : Many studies use research and development (R&D) intensity or R&D spending as a proxy for risk taking, but we have little evidence that either associates positively with firm risk. We analyze the relations between R&D intensity (R&D spending to sales) and R&D spending on the one hand and 11 different indicators of firm risk on the other, using data from 1,907 to 3,908 firms in various industries over 13 years. The analysis finds a general lack of consistent positive association between R&D and firm risk, making the use of R&D as an indicator of risk taking questionable. Furthermore, R&D intensity and spending do not correlate positively, suggesting they measure different constructs. We discuss potential reasons for these nonsignificant results. Our study demonstrates that researchers should avoid casual use of R&D as a proxy for risk taking without explicitly providing a clear definition and measurement model for risk. Managerial summary : Risk is a key construct in strategic management research. Many studies in this area measure risk taking by research and development (R&D) intensity (the ratio of R&D spending to sales) or R&D spending. However, since R&D intensity and spending have also been used to measure various other things such as information processing demands, this raises the question of whether R&D intensity and spending are valid indicators of firm risk. We examine this issue by considering the associations of R&D intensity and R&D spending with conventional measures of firm risk. We find a general lack of consistent positive association between R&D and firm risk, making the use of R&D as an indicator of risk taking questionable. Furthermore, R&D intensity and spending do not correlate positively, suggesting they measure different things. Copyright © 2016 John Wiley & Sons, Ltd.