Sunk Costs,Extensive R&D Subsidies and Permanent Inducement Effects

Using firm‐level data on Spanish manufacturing firms we estimate a model of the firm's optimal R&D decisions (whether to perform R&D and how much to invest). We quantify the fixed (proper fixed costs plus firms' outside option) and sunk costs of R&D and find the former to be substantially higher than the latter. While sunk costs act as a barrier to entry into R&D for some firms, fixed costs are the binding obstacle for many more firms. Simulation based on the estimated model reveals that one‐shot trigger subsidies cause a substantial increase in both the share of R&D firms and average R&D expenditures. This effect shows persistence over time, but totally fades away after seven years as firms are gradually hit by negative R&D profitability shocks.     

Cross‐border acquisitions by state‐owned firms: How do legitimacy concerns affect the completion and duration of their acquisitions?

Research summary: Cross‐border acquisitions may raise legitimacy concerns by host‐country stakeholders, affecting the acquisition outcomes of foreign firms. We propose that theorization by local regulatory agencies is a key mechanism that links legitimacy concerns with acquisition outcomes. Given that theorization is time consuming and its outcome is uncertain, we argue that state‐owned foreign firms experience a lower likelihood of acquisition completion and a longer duration for completing a deal than other foreign firms. Moreover, we introduce a set of firm characteristics (target public status, target R&D alliances, and acquirer acquisition and alliance experiences) that may affect the threshold level of legitimacy, thereby altering the proposed relationships. Our framework and findings provide useful implications for institutional theory on its core concept of legitimacy. Managerial summary: Cross‐border acquisitions by state‐owned foreign firms may lead to national security concerns and thus debates and discussions among local regulatory agencies. We argue that such institutional processes may reduce the likelihood of acquisition completion and prolong the duration of acquisition completion. Using cross‐border acquisitions in the United States, we find that acquisitions by state‐owned foreign firms are not less likely to be completed than acquisitions by other foreign firms, but they take more time to be completed. Moreover, state‐owned foreign firms are less likely to complete an acquisition when the target firm has more R&D alliances. However, their acquisition experience and alliance experience in the host country increase the likelihood of acquisition completion, whereas their alliance experience alone shortens the acquisition duration. Copyright © 2016 John Wiley & Sons, Ltd.     

Organizing for continuous technology acquisition: the role of R&D geographic dispersion

External technology acquisition has been proved to be an important strategy to enhance firms’ innovation performance. However, previous studies claim that companies acquiring technologies tend to not carry on with this strategy over time, thus limiting their attitude toward continuous technology acquisition. Moreover, the extant literature also highlights that this attitude is strongly influenced by their organizational structure. Therefore, in the present paper, we investigate the relationship between how firms organize R&D activities and continuous technology acquisition. Specifically, given the increasing globalization of technological development, we focus on the role of R&D geographic dispersion, and how its influence is moderated by firms’ technological diversification. We tested our hypotheses on longitudinal data of 303 biotechnology firms that acquired, at least, one USPTO patented technology over the period 1982–2012. Results reveal that R&D geographic dispersion is curvilinearly (inverted U-shaped) related to continuous technology acquisition, with negative returns occurring earlier in technology-diversified companies.     

The Effects of Taxes and Organizational Variables on Research and Development Intensity

Prior research has failed to reach consensus on which variables explain private-sector research and development (R&D) spending. This study extends prior research explaining R&D spending of firms in the US private sector by regressing R&D intensity on a number of tax and organizational variables. COMPUSTAT data from 113 firms in 1994 are used to estimate the effects of the variables on R&D intensity (used interchangeably with R&D activity). Ordinary least square estimates indicate that firms that were eligible for the R&D credit had higher R&D activity than firms that were ineligible. R&D intensity is a decreasing function of both capital intensity and the debt to capital ratio. Neither management stockholding nor diversification strategy meaningfully influenced R&D activity. The reported results have implications regarding US tax policy towards the tax subsidy for R&D. The results also help to clarify prior findings regarding a number of organizational variables on R&D intensity. One implication of these results for US tax policy is that private sector R&D intensity can be meaningfully influenced by the level of tax subsidy.     

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.     

Measuring firms’ imitation activity

Although imitation is more abundant and prevalent than innovation in firms’ product and process development activities, it has been understudied in research on innovation and R&D management. For example, a valid and reliable objective firm-level measure of the intensity of imitation activity is lacking in the extant literature. This measure is necessary to understand the antecedents and consequences of firms’ imitation activity, which has implications for R&D management. In this paper, we present novel methods that employ patent infringement litigations data to improve on the validity and reliability of measuring firms’ imitation activity. We validate our proposed measure by presenting a first model and test of R&D as a multiple-output production function with R&D expenditure as the primary input, and innovation and imitation as joint outputs. This is in contrast to current R&D models as a single-output production function of either innovation or imitation. This study uses a sample of 227 public firms from the computer, semiconductor, and pharmaceutical industries in the United States during 1991–2010.     

OVERSEAS R&D ACTIVITIES AND HOME PRODUCTIVITY GROWTH: EVIDENCE FROM JAPANESE FIRM‐LEVEL DATA*

This paper investigates the impact of overseas subsidiaries' R&D activities on the productivity growth of parent firms using firm‐level data for Japanese multinational enterprises. Based on survey responses, we classify each overseas subsidiary's R&D as either ‘innovative R&D,’ which we hypothesize is likely to lead to the acquisition of foreign knowledge, or ‘adaptive R&D,’ which is more likely to lead to adaptation to local conditions. We find that overseas innovative R&D raises the parent firm's productivity growth, while adaptive R&D has no such effect. In addition, overseas innovative R&D does not improve the rate of return on home R&D.     

International knowledge sourcing: evidence from U.S. firms expanding abroad

Recent research demonstrates that firms, motivated by national differences in technical activity, expand abroad to source unique knowledge. Extant research suggests that firms use a knowledge sourcing strategy to ‘catch up’ with competitors and to obtain ‘technical diversity.’ We widen the investigation by suggesting that firms also use knowledge sourcing as a springboard to reduce their next generation R&D costs–that firms would seek out similar R&D activity to combine with their own. Using unique data that encompasses the multitude of countries where U.S. firms invest, we test the importance of these explanations. Measuring knowledge via patent stocks, we find that country‐industries with larger stocks and greater technical similarity to the United States are more attractive. These findings suggest that an important explanation for firms investing abroad is not catching up or technologically diversifying, but is using similar R&D efforts of others to overcome fixed R&D cost hurdles. Copyright © 2008 John Wiley & Sons, Ltd.     

Choosing the right target: Relative preferences for resource similarity and complementarity in acquisition choice

Research summary : Corporate acquisition is a popular strategic option for firms seeking new resources. However, little research exists on the question of why one firm is chosen over another. We develop a model relating characteristics of similarity and complementarity between acquirers' and target firms' key resources, including their products and R&D pipelines, to the likelihood of the acquirers choosing a particular firm. We construct measures of similarity and complementarity between and across products and R&D pipelines, and test their effects using a novel application of the choice model. Findings reveal that acquirers view similarity and complementarity differently, based on the resource they are comparing. When making comparisons to their own R&D pipelines, acquirers prefer similarity over complementarity whereas when making comparisons to their product portfolios, they prefer complementarity over similarity. Managerial summary : Corporate acquisition is a popular way for firms to grow and obtain innovative resources. However, we know little about why acquirers choose one firm over another. We capture the influence of similarity and complementarity between acquirers' and target firms' products (current innovative value) and R&D pipelines (future innovative value) on whether a particular target firm is acquired. Insights from the pharmaceutical industry reveal that acquirers value similarity and complementarity in target firms differently, based on whether the comparison being made is with respect to their products or their R&D pipelines. Regarding their R&D pipelines, acquirers prefer that the target firm has similar, rather than complementary, resources. However, the opposite is true concerning their own products: acquirers prefer that the target firm has complementary, versus similar, resources. Copyright © 2015 John Wiley & Sons, Ltd.     

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.     

Cost Reduction,Competitive Pressure and Firms' Optimal R&D Strategies in a Duopolistic Industry

This paper deals with a duopolistic industry where firms are engaged in cost-reducing R&D activity in order to maximize their market shares. Firms' R&D competition is characterized as a dynamic noncooperative feedback game where the optimal strategies are affected by the extra-industry R&D activity and the degree of intra-industry spillovers. Numerical simulations highlight the importance of the assumptions on the firms' absorptive capacity (to exploit external knowledge) in determining the optimal levels of firms R&D investrnents.     

The contribution of external service inputs to the product development efforts of small manufacturing firms

This paper examines the contribution of external inputs to the innovation performance of small manufacturing firms (SMFs) in New York State. Survey data from a 4-sector sample of SMFs is presented. Particular attention is given to recent patterns of external spending on technological, management, and information services. The results suggest that innovation performance is enhanced by external sources of scientific, technical, and professional support. SMFs with well developed internal technical skills are found to exhibit above average spending on external help. Elaborate patterns of external knowledge acquisition are found to be particularly prevalent among innovative firms that derive a substantial proportion of their current sales from new or significantly improved products. The empirical results are compared with the findings reported by other North American and European studies. The paper concludes with a discussion of the implication of the survey results for regional development agencies and R&D managers.     

Inventor bricolage and firm technology research and development

We examine the conditions around firm use of 'inventor bricolage,' or the reconstruction of technological capabilities through reallocation of extant individual inventors to address new opportunities embodied in patents. Empirically, we examine the dynamics of both firm and individual patenting activity in publicly traded Life Science Diagnostic firms to explore how inventor bricolage is related to firms' existing research and development (R&D) capabilities and firms' acquisition of external capabilities through merger and acquisition (M&A) activities. Evidence at the firm level suggests that breadth of inventors' human capital and collaboration with co-researchers with relevant experience is positively related to inventor bricolage. At the inventor level, the fewer patents an inventor has, the broader the individual's prior patent portfolio, and the more co-researchers with relevant experience, the more likely inventors will patent in a new area. M&A does not appear to have an impact on the utilization of existing human capital. Our findings suggest that R&D managers should assign inventors with less assimilative capacity and more creative capacity in teams where there is relevant experience in order to promote inventor bricolage.     

Strategies for Linking Vertical Cooperative R&D to Commercialization in Korea

Since 1982, the government of Korea has actively promoted vertical cooperative R&D programs between government-sponsored research institutes (GRIs) and private firms. A number affirms participated in the programs because cooperative R&D could lower the risk and could contribute to rapid commercialization of many technologies. In this article, Chulwon Lee, Zong-Tae Bae, and Jinjoo Lee examine the effectiveness of participant firms' strategies for commercial utilization of cooperative R&D results, from the viewpoint of technology sourcing at the project level. The data have been obtained from 162 cases of vertical cooperative R&D projects from a diverse group of industries in Korea. Three different commercialization strategies are empirically derived through cluster analysis of the relative usage rates of cooperative R&D and of other supplementary technology acquisition methods. They find that the effectiveness of these strategy clusters varies significantly according to the types of innovation, that is, project-business relatedness. If the project belongs to an existing business area, in-house development augmented cooperative R&D strategy is the most effective. On the other hand, licensing-in supplemented cooperative R&D strategy is the most successful, if the project belongs to a new business area. Findings suggest that firms participating in cooperative R&D projects should try to utilize other supplementary technology acquisition methods in order to achieve commercial utilization of cooperative R&D results.     

The role of taxes in corporate research and development spending

This study replicates prior research regarding research and development (R&D) spending by sampling R&D spending for a cross‐section of firms in non‐service related industries. Compustat data for 231 firms from 1992 to 1998 are used to test whether the US Federal tax credit for R&D meaningfully influenced R&D spending of the sampled firms. Firms' (1) effective rate of R&D tax credit, (2) rate of decay in R&D capital for firms' primary industry affiliation, (3) financial cost of capital, and (4) marginal tax rate are used to compute firms' user‐cost of capital for in‐house R&D. Results show that firms that were eligible for the tax credit spent more on R&D than non‐eligible firms as the user‐cost of in‐house R&D increased. These results add further evidence regarding the role of the tax credit in stimulating R&D activity and suggest that a tax credit for incremental research can be used to boost private‐sector R&D spending.     

Assessing the impact of university interactions on an R&D organization

Large R&D organizations of firms operating in rapidly changing environments invest sizeable amounts to acquire knowledge through interactions with universities. The impact of these interactions on R&D organizations has received little attention in the literature. In this paper we propose a framework for evaluating the firm's investment in universities and in internal university interaction programs. The framework is comprised of three elements: objectives, relevant collectivity and structure. Objectives for the interaction are linked to the specific objectives of the R&D organisation. Individuals in the firm engaged in activities leading to the acquisition, assimilation and commercial exploitation which can potentially benefit from the new knowledge define the collectivity of interest. Structure is specified in terms of five components: network of relationships, technological guideposts, coordination arrangements, distribution of power, and shared beliefs and norms. Use of the framework is illustrated with four examples.     

Effect of agglomeration on firms’ research and development investment: a U-shaped relationship

Extant research on how agglomeration affects firms’ R&D investment reveals conflicting views. Some studies suggest that, owing to free riding arising from knowledge spillovers, agglomeration reduces firms’ R&D investment, whereas others find that it creates additional incentives for innovation through intensifying local competition, thereby increasing firms’ R&D investment. Thus, this study attempts to reconcile these two conflicting views. We propose a U-shaped relationship between agglomeration and firms’ R&D investment; that is, when the extent of agglomeration is low, knowledge spillover effects are important, while local competition is negligible. The free riding effects dominate local competition effects. Therefore, firms’ R&D investment decreases with the extent of agglomeration at a decreasing rate. By contrast, when the extent of agglomeration is high, local competition becomes the dominant force. Consequently, firms’ R&D investment increases with the extent of agglomeration at an increasing rate. Using data from 299,256 manufacturing firms in China, we find that firms’ R&D investment first decreases with the extent of agglomeration to reach a minimum, then increases as the extent of agglomeration continues to rise. These results indicate that there is a robust U-shaped relationship between agglomeration and firms’ R&D investment.     

Strategic control systems and relative r&d investment in large multiproduct firms

This paper hypothesizes that tight financial controls associated with large diversified M-form firms lead to a short-term, low-risk orientation and thereby lower relative investment in R&D. Further, it is hypothesized that increasing levels of diversification require different control systems which have significant implications for investing in R&D. Results of the study of 124 major U.S. firms suggest that less diversified U-form firms invest more heavily in R&D than more diversified M-form firms after controlling for size and industry effects. Additionally, dominant business firms invested more in R&D than either related or unrelated business firms. Finally, the relationship between R&D intensity and market performance was negative for related and unrelated firms. The findings suggest that the market evaluates R&D investment more positively for firms that are organized to seek synergy than for those that are organized to pursue a hedging (or diversification) strategy.     

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.     

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.