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.     

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.     

Market Power, Industrial Concentration and Innovative Activity

This paper discusses the paradox between the positive effect of industrial concentration on R & D spending, and its non-positive effect on the number of innovations. Also, I analyze whether concentration has different effects on small- and large-firm R & D. The analysis shows that the positive effect of industrial concentration on R & D spending is at least as strong for small firms as it is for large firms within an industry, which indicates that the possession of market power is not in itself conducive to innovative effort. In addition, high concentration appears to be attended with a loss of efficiency in R & D spending.     

The Determinants of Innovation: R & D,Technology Transfer and Networking Effects

The traditional analysis of innovation has focused on the Schumpeterian hypothesis of a positive link between market power and innovation. This often includes an implicitly linear view of the innovation process, with R & D as a necessary first step. This paper widens the determinants of innovation beyond R & D to include technology transfer and networking effects, thus extending the standard Schumpeterian analysis. When tested on a dataset of c. 1300 UK manufacturing plants, R & D, technology transfer and networking are found to be substitutes in the innovation process, with the two latter intensities especially important in increasing the extent of innovation. There is no evidence that (actual) monopoly power increases the extent of innovation, but there are significant plant and sectoral effects on innovation.     

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.     

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.     

Inter-firm Collaboration and Learning: The Case of the Japanese Automobile Industry

This paper investigates the effect of intra-firm Research and Development expenditure and inter-firm collaboration on firm performance. It is proposed that R&D expenditures enable a company to improve knowledge and assimilate the exchange of information within non-routine collaboration activities. The hypotheses are tested by an empirical study on inter-firm technical collaboration in Japanese Automobile firms during the years 1975–1995, using the method of first-order auto-regression on a panel data set. The findings indicate that R&D expenditure increases performance, but do not allow clear conclusions on the effects of collaborations.     

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).     

A cross-national investigation of the R&D-marketing interface in the product innovation process

Managing the interface between R&D and marketing is a critical element of successful new product development programs. The purpose of this research is twofold. First, we develop testable hypotheses from a theoretical model of cross-functional team management in the product innovation process based on the seminal work of Gupta, Raj, and Wilemon. We test the hypotheses using data collected from 376 U.S., 292 Chinese, and 279 Japanese firms. Second, we uncover and highlight similarities and differences in cross-functional involvement between marketing and R&D in the product innovation process across these three countries. The results generally provide overall support for the model and reveal some surprising cross-national differences.     

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.     

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.     

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.     

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.     

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.     

R & D and marketing dialogue in high-tech firms

Based on an empirical study of more than 200 R & D and marketing managers from high-technology companies, we conclude that (1) there is a great deal of consensus between R & D and marketing managers on the relative importance of the areas requiring integrated efforts; (2) companies successful in their new product program achieve a significantly greater degree of R & D marketing integration; (3) company size does not affect the level of integration achieved; and (4) the companies that achieve a high degree of R & D/ marketing integration do so by concentrating on all 19 areas proposed in the article and do not merely focus on a few key areas.     

Innovation and Merger Decisions in the Pharmaceutical Industry

There is increasing public policy concern about the potentialeffects of mergers on innovation. This paper provides acomparative analysis of approaches to innovational competitiontaken by the E.U. and U.S. merger authorities in a sample of threerecent, major, pharmaceutical mergers. The European Commission'sapproach appears lighter handed and places more explicit emphasison effects in downstream markets. The uncertainties in the analysisof dynamic effects of mergers on innovation, even in pharmaceuticals,suggest the need for a cautious approach and for careful framingof any merger remedies where R & D projects and components, ratherthan approved drugs, are involved.     

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.     

Product Innovation and Survival in a High-Tech Industry

We investigate the relationship between product innovation and firm survival for a sample of 121 firms in a high-tech industry. We find that location near the technological frontier is an important determinant of firm survival. Firms that are located near the frontier are also more likely to be acquired than to exit by liquidation if they cannot survive as free-standing enterprises. This suggests that product location in the technology space acts as a signal of firm quality. Greater R&D efforts increase the probability of surviving; in the event that the firm does exit, however, its R&D efforts do not significantly influence whether it exits via acquisition or exits via liquidation.     

Small is big in ICT: The impact of R&D on productivity

We examine the contribution of R&D to firm productivity in a large panel of European firms and study its variation with the age, size, and sub-sector of firms. We find that R&D capital in ICT firms has a larger effect on revenue when compared to non-ICT firms. At the firm level, our results suggest that, surprisingly, smaller and older ICT firms benefit the most from R&D. Small but mature ICT firms are likely to dominate market niches, and small size may enable them to be flexible and adaptable which helps them respond to technological opportunities to develop innovative products and services. This has important implications for public policy based upon firm age.