Dynamics of firm's network community associations and firm's innovation performance

ABSTRACT

R&D network structures have crucial impacts on firm's innovation performance. However, most previous studies have been based on the whole or ego network perspective, few studies have investigated the influence of community structure that a firm is engaged in on its innovation performance, and it is still unclear how a firm's relation to network community affect its innovation performance. This research aims to address this gap by focusing on the dynamics of firm's network community associations, empirically investigate the relationship between dynamics of firm's network community associations and its innovation performance. Based on the unbalanced panel data of smartphone R&D network during year 2004–2017, the results demonstrate that change in community member associations and movement across communities both have inverted-U-shaped effects on firm's innovation performance. Moreover, innovation openness depth has moderating effects on the relationships between dynamics of firm's network community associations and its innovation performance.     

A simple theory and evidence on the determinants of firm R&D

This paper derives a simple, but informative, model of firm R&D to figure out key factors that determine firm R&D effort. The model suggests a demand-pull, technology-push theory of R&D by showing that a firm's profit-maximizing R&D expenditure is determined jointly by both demand-side factors and technology-side factors. The former includes demand size (firm sales) and consumer preference over quality and price and the latter includes R&D cost structure or the production-cost effect of product R&D and firm-specific technological competence. In addition, the model shows that other things being equal, the stock of exogenous technological knowledge, including the firm's previously accumulated technological knowledge, relevant to current R&D which is negatively related with current R&D effort. An empirical analysis of firm R&D intensities and technological capabilities of more than 1600 firms in nine industries across six countries provides supportive evidence for the theory. Further, the theory implies that R&D intensity or the R&D-to-sales ratio is independent of firm size unless firm size affects technological competence and that given consumer preference and R&D cost structure facing all firms in the same industry, the distribution of firm-specific technological competence among firms determines the distribution of firm R&D intensities within the industry.     

Beyond R&D activities: the determinants of firms’ absorptive capacity explaining the access to scientific institutes in low–medium-tech contexts

A firm's search strategy is to use innovation inputs from external sources such as suppliers, clients, competitors, universities and research transfer offices (RTOs) to complement their in-house knowledge. Thus, a firm needs to be capable of identifying and valuing the potential value of certain external knowledge, i.e. absorptive capacity. Most of the studies regarding search patterns are reduced mostly to medium–high- and high-tech industries in which only the level of investment in R&D activities as determinant of a firm's search strategy is considered. In addition, when the flows of external knowledge arise from firm–university interactions, the evidence is still inconclusive, specifically for SMEs and low–medium-tech environments. Therefore, the objective of this paper is to explore the pattern of a firm's search strategy through its absorptive capacity to acquire external flows of knowledge from universities and RTOs. The paper draws especially on the role of non-R&D innovation activities in low–medium-tech sectors. Seven hundred and forty three innovative firms from the Spanish Ministry of Industry are analysed. Results suggest that human resources and other non-R&D activities are the core drivers explaining the cooperation agreements to access external knowledge from universities and RTOs. Surprisingly, R&D expenditures do not contribute to the explanation. This paper presents important implications for policy-makers beyond the classic R&D policies.     

Effect of piracy on innovation in the presence of network externalities

This paper analyzes the impact of simultaneous increases in piracy (piracy effect) and network externalities (network effect) on R&D investment. A single firm's R&D investment increases (or decreases) if the network effect (or piracy effect) is dominant. With R&D competition, if the firms “significantly” differ with respect to their R&D efficiencies and if the piracy effect dominates the network effect then the less efficient firm's R&D investment increases and that of the more efficient firm's decreases. In this case, the overall probability of successful innovation increases. The reverse holds if the network effect dominates the piracy effect. If the firms are “less” asymmetric then their R&D investment either increases or decreases depending on the relative strengths of the piracy and network effects.     

Research,Innovation And Productivi[Ty: An Econometric Analysis At The Firm Level

This paper studies the links between productivity, innovation and research at the firm level. We introduce three new features: (i) A structural model that explains productivity by innovation output, and innovation output by research investment: (ii) New data on French manufacturing firms, including the number of European patents and the percentage share of innovative sales, as well as firm-level demand pull and technology push indicators; (iii) Econometric methods which correct for selectivity and simultaneity biases and take into account the statistical features of the available data: only a small proportion of firms engage in research activities and/or apply for patents; productivity, innovation and research are endogenously determined; research investment and capital are truncated variables, patents are count data and innovative sales are interval data.

We find that using the more widespread methods, and the more usual data and model specification, may lead to sensibly different estimates. We find in particular that simultaneity tends to interact with selectivity, and that both sources of biases must be taken into account together. However our main results are consistent with many of the stylized facts of the empirical literature. The probability of engaging in research (R&D) for a firm increases with its size (number of employees), its market share and diversification, and with the demand pull and technology push indicators. The research effort (R&D capital intensity) of a firm engaged in research increases with the same variables, except for size (its research capital being strictly proportional to size). The firm innovation output, as measured by patent numbers or innovative sales, rises with its research effort and with the demand pull and technology indicators, either directly or indirectly through their effects on research. Finally, firm productivity correlates positively with a higher innovation output, even when controlling for the skill composition of labor as well as for physical capital intensity.     

Open innovation and intellectual property strategy: the catch-up processes of two Chinese pharmaceutical firms

We explore the interaction of open innovation and intellectual property (IP) in two Chinese latecomer pharmaceutical firms in their catch-up process. Studying archival data, documentation, and interviews, we found that the two firms exhibited five periods that were characterised by different open innovation activities and R&D capabilities. In their early stages, the two firms lacked R&D functions; thus, they imported technologies and pursued production-oriented strategies. As they gradually entered into collaborations and established their R&D departments, open innovation and IP protection played important and dynamic roles in this process. Thus, a catch-up process involves not only acquiring technological capabilities and innovative competencies but also transforming a firm's capacity to strategies.     

The impact of process innovations on firm's productivity growth: the case of Spain

The main aim of this paper is to investigate about the effect that a measure of the process innovation performance of a firm has on its labour productivity growth. This analysis is mainly a consequence of two considerations. The first one results from a clear differentiation of the role that product and process innovations have on a firm's performance. The second one is to assume that the knowledge capital of a firm is mainly composed by its successful research. The study demonstrates that process innovation has a positive and significant effect on firm's productivity growth. Moreover, this result is robust under a wide range of alternative specifications and, in any case, the variable behaves much better than R&D intensity. Following previous research, the detected quadratic relationship between vertical product differentiation and process innovation performance leads to the existence of some firms for which there exist a trade–off between quality and productivity.     

Firms’ productivity growth and R&D spillovers: An analysis of alternative technological proximity measures

This paper aim at assessing the impact of R&D spillovers on firms’ economic performance as measured by productivity growth. The construction of R&D spillovers is based on Jaffe's methodology (1988, 1996) which associates econometrics and data analysis. The main objective of the paper is to extend Jaffe's methodology by examining alternative methods for measuring R&D spillovers and to test their impacts in terms of the robustness of results. In particular, the method used to classify firms into technological clusters as well as the metrics implemented to appreciate firms’ technological proximities which enter the construction of spillovers are further investigated. In addition to R&D spillovers, firms’ own R&D capital, labour and physical capital are estimated by means of a Cobb–Douglas production function. The data set consists of a representative sample of 625 worldwide R&D intensive firms over the period 1987–1994.     

Determinants of investment and innovation expenditure in Polish manufacturing industries

This article analyses determinants of sectoral R&D and innovation expenditure as well as investment in Polish manufacturing industries in 1994–2004. The estimated coefficients for user cost of capital are generally in line with the neoclassical model of investment, except for R&D intensity. The latter are primarily discouraged by systemic uncertainty. The rate of growth of sales is not a prominent determinant of investment and innovation expenditure. Market concentration coupled with uncertainty has a damaging effect on physical capital investment but it promotes R&D expenditure and leaves innovation intensity unaltered.     

How do the combined effects of CEO decision horizon and compensation impact the relationship between earnings pressure and R&D retrenchment?

Although relevant literature has been accumulated, how earnings pressure from stock analysts affects a firm's innovation expenditures remains unclear. In order to make this relationship more clear, this study investigates the impact of earnings pressure on a firm's research and development (R&D) investment by considering the combined effects of CEOs’ decision horizon and incentives. Our hypotheses were tested by firms from the S&P 1500 during the period from 2000 to 2012. The findings reveal that earnings pressure has a detrimental effect on a firm's R&D investment, and also that it goes worse when CEOs have a shorter decision horizon. However, when it comes to compensation incentives, we found that either CEOs equipped with higher stock ownership or fewer stock options can reduce the adverse effect of a shorter decision horizon on the relationship between earnings pressure and R&D retrenchment.     

INNOVATION ACTIVITIES EXPLAINED BY FIRM ATTRIBUTES AND LOCATION

In this paper, innovation activities of a firm are observed as its R&D spending and participation in three categories of innovation systems. The various factors that can influence a firm's innovation efforts are divided into, (i) firm location reflecting the regional milieu and (ii) firm attributes such as corporate structure, nature of the knowledge production, type of industry and a set of specific firm characteristics. The study is based on information about 2094 individual firms, which may be non-affiliated or belong to a group (multi-firm enterprise). The empirical analysis applies a novel data set to examine the influence of location versus a vector of firm attributes. Among innovative firms, the location of a firm does not influence neither the R&D intensity nor the frequency of interaction in horizontal and vertical innovation systems, when controlling the skill composition, physical capital intensity, industry, firm size and market extension. The paper contributes to the literature by observing that innovative firms have similar characteristics irrespective of where they are located, although the share of innovative firms differs between regions.     

Patents,technological inputs and spillovers among regions

This article analyses the importance of different technological inputs (R&D and human capital) and different spillovers in explaining the differences in patenting among Spanish regions in the period 1986 to 2003. The analysis is based on the estimation of a knowledge production function. A region's own R&D activities and human capital are observed to have a positive significant effect on innovation output, measured by the number of patents. R&D spillovers weighted by the distance and the volume of trade flows between regions cause positive effects on a region's patents. However, distance matters more than the intensity of trade flows and the R&D spillover effects between regions are bounded: spillovers from closer regions perform better than spillovers from distant regions. On the opposite side, human capital spillovers do not cause any effect outside the region itself.     

R&D spillovers and productivity: Evidence from U.S. manufacturing microdata

This paper deals with the estimation of the impact of technology spillovers on productivity at the firm level. Panel data for American manufacturing firms on sales, physical capital inputs, employment and R&D investments are linked to R&D data by industry. The latter data are used to construct four different sets of `indirect' R&D stocks, representing technology obtained through spillovers. The differences between two distinct kinds of spillovers are stressed. Cointegration analysis is introduced into production function estimation. Spillovers are found to have significant positive effects on productivity, although their magnitudes differ between high-tech, medium-tech and low-tech firms. First version received: April 1997/final version received: April 1999     

Innovation and productivity in manufacturing and service firms in Catalonia: a regional approach

This article analyses the determinants of research and development (R&D) and the role of innovation on labour productivity in Catalan firms. Our empirical analysis found a considerable heterogeneity in firm performances between the manufacturing and service industries and between low- and high-tech industries. The frontiers that separate manufacturing and service industries are increasingly blurred. In Catalonia high-tech knowledge-intensive services (KIS) play a strategic role in promoting innovation in both manufacturing and service industries, and driving growth throughout the regional economy. Empirical results show new firms created during the period 2002–2004 that have a greater R&D intensity than incumbent firms (54.1% in high-tech manufacturing industries and 68.8% in high-tech KIS). Small and young firms in the high-tech KIS sector are very prone to carrying out R&D and they invest more in innovation projects. R&D expenditures, output innovation, investment in physical capital, market share and export have positive effects on labour productivity in both the manufacturing and service sectors. Firm size, on the other hand, has a positive effect on productivity in manufacturing industries but not in services.     

Intra-industry spillovers and innovation: An econometric analysis at the firm level

This paper studies spillover effects of innovation at the firm level and the comparability of generalized method of moments (GMM) estimators with maximum likelihood estimators of the earlier studies. Two sources of spillovers are identified, i.e. intra-industry R&D expenditure and intra-industry innovation output. This paper estimates a negative R&D spillover effect and a positive output spillover effect. Because of the substitution effect of intra-industry R&D spillovers, the elasticity of patent with respect to firm's own R&D expenditure is greater than those estimated in the earlier studies. With GMM, individual effects are incorporated into the models either by developing proxies for them or attempting to eliminate them.     

Managerial compensation and R&D investments: the role of the external managerial labour market

This paper investigates the importance of the external managerial labour market in the determination of managerial compensation and in the influence of the compensation incentives on a firm’s R&D investments. I design an empirical model including the compensation adjustment regression, of which the focus is the role of the external labour market, and the R&D regression that examines how the compensation incentives derived from the external labour market affect a firm’s R&D intensity. Empirical results suggest that the R&D intensity is positively related to the premium of the actual pay adjustments over the expected pay adjustments based on the external labour market comparisons. The effect of the compensation incentives on the R&D investments is strongest when managers expect pay to decrease but actually experience an increase in pay.     

Proximity,networking and knowledge production in Europe: What lessons for innovation policy?

This paper aims at investigating the role of different types of proximity on the technological activity of a region within the context of a knowledge production function, where R&D expenditure and human capital are the main internal inputs. We thus assess to what extent the creation of new ideas in a certain region is enhanced by knowledge flows coming from proximate regions. In particular, we examine in detail different kinds of proximity by combining the usual geographical dimension with the institutional, technological, social and organizational proximity. The analysis is implemented for an ample dataset referring to 276 regions in 29 European countries (EU27 plus Norway, Switzerland) over the last decade. Results show that human capital and R&D are clearly essential for innovative activity with the former being much more effective in driving the production of knowledge. As for the proximity and network effects, we find that technological proximity outperforms the geographic one, whilst a limited role is played by social and organizational networks. As a result, the first policy message is that European regions still need to focus on policies aimed at increasing the endowments of well-educated labour force and therefore their knowledge base. Furthermore, we need innovation policies based on each region's specific innovation potential, due to the existing differences in geographical, cognitive, institutional, social and organizational structures and networks.     

The impact of external R&D financing on innovation process from a supply-demand perspective

This paper sheds light on the effects of two different types of R&D financing sources respectively from a supply-demand combined perspective, namely subsidy from government and venture capital in market, on the innovation process. Our empirical analysis is based on a unique data set of industrial enterprises located in Beijing ZhongGuanCun Science Park during the period 2008–2015. In terms of the two stages of the innovation process, this paper untangles and compares the effects of the two financing sources on R&D input, patent output as well as profit outcome. We find that both supply- and demand-side external R&D financing channels have differential effects on the innovation process in terms of input, output or outcome as well as the different-sized enterprises. Supply-side subsidy tends to be more effective at the front end of the innovation process, while venture capital shows a demand-side consideration on technology evolution by focusing more on the back end of the innovation process. Both government subsidy and venture capital can have a significantly positive impact on the entire innovation process of small and micro enterprises, whereas for large and medium-sized enterprises, subsidy has no significant impact on profit outcome and venture capital can only affect patents positively. These findings suggest that the Chinese government should focus more on small and micro firms and increase such firms’ access to venture capital through a process of certification, so as to achieve an effective combination of government functions and market functions.     

Does R&D spending boost tangible investment? An analysis on European firms

This article investigates the relationship between firm’s R&D intensity, expressed as R&D expenditure over sales, and investment intensity in tangible assets. It is commonly acknowledged that R&D requires additional physical investment to be implemented. R&D increases a firm’s productivity and return to tangible investments, thus, providing to the firm incentives to bear high tangible capital costs and to invest more. This represents a crucial issue for a firm’s growth, particularly considering the strong interaction between physical capital accumulation and technological progress. The analysis is based on a large sample of manufacturing firms across seven European countries in the period 2007–2009. Since the sub-sample of firms performing R&D might not be random, there may potentially be an endogeneity issue. The analysis also considers that firms may decide to spend on R&D and investment in physical capital simultaneously. The questions of both endogeneity and simultaneity are dealt with by employing an instrumental variable two-step procedure. We find a positive and significant impact of R&D intensity on firms’ tangible investment intensity. The econometric results highlight the importance of financial factors, particularly with respect to firms’ internal resources. Exposure to international trade has a negative impact on investment, possibly depending on the time-span of the sample used.

Abbreviations: Technological Innovation and R&D; Investment Capital; Industry Studies; Firm Behavior; Empirical Analysis     

Productivity and R&D sources: evidence for Catalan firms

This paper draws on a sample of innovative Catalan firms to identify how two main sources of innovation – internal R&D and external R&D acquisition – affect productivity in the manufacturing and service industries. The sample comprises 1612 innovative firms from the fourth European Community Innovation Survey (CIS-4) during the period 2002–2004. We compare empirical results when applying the usual OLS and quantile regression techniques controlling with a non-parametric sample selection. Our results indicate the different patterns that are attributable to the two sources of innovation as we move up from lower to higher conditional quantiles. First, the marginal effect of internal R&D on productivity decreased as we moved up to higher productivity levels. Second, the marginal effect of external R&D acquisition increased as we moved up to higher productivity levels. Finally, empirical results show significant complementarities between internal and external R&D, which are higher for knowledge-intensive service sectors.