Corporate R&D and firm efficiency: evidence from Europe’s top R&D investors

The main objective of this study is to investigate the impact of corporate research and development (R&D) activities on firm performance, measured by labour productivity. To this end, the stochastic frontier technique is used on a unique unbalanced longitudinal dataset comprising top European R&D investors over the period 2000–2005. In this framework, this study quantifies technical inefficiency of individual firms. From a policy perspective, the results of this study suggest that if the aim is to leverage firms’ productivity, the emphasis should be put on supporting corporate R&D in high-tech sectors and, to some extent, in medium-tech sectors. On the other hand, corporate R&D in the low-tech sector is found to have a minor effect in explaining productivity. Instead, encouraging investment in fixed assets appears important for the productivity of low-tech industries. Hence, the allocation of support for corporate R&D seems to be as important as its overall increase and an ‘erga omnes’ approach across all sectors appears inappropriate. However, with regard to technical efficiency, R&D intensity is found to be a pivotal factor in explaining firm efficiency and this turns out to be true for all industries.     

A micro-econometric analysis of the role of R&D spillovers using a nonlinear translog specification

This paper assesses the impact of Research and Development (R&D) spillovers on production for a panel of 1,203 Italian manufacturing firms over the period 1998–2003.The estimations are based on a nonlinear translog production function augmented by a measure of R&D spillovers which combines the geographical distance between firms, the technological similarity within each pair of firms and the technical efficiency of each firm. The estimation method takes into account the endogeneity of regressors and the potential sample selection issue regarding the decision by firms to invest in R&D. Results show that the translog production function is more suitable than the Cobb-Douglas for modelling firm behaviour and that returns to scale are increasing. Moreover, the internal and external stocks of technology exert a significant impact on firms’ production. Finally, it emerges that, for Italian manufacturing firms, R&D capital and R&D spillovers are highly substitutes.     

Trade and product innovations as sources for productivity increases: an empirical analysis

Increases in total factor productivity (TFP) are commonly associated with technological innovations measured by the stock of R&D. Empirical evidence seems to corroborate this relationship. However, in trading countries like The Netherlands, productivity increases, even in industry, can also be the result of innovations in the way transactions are managed. These innovations reduce transaction costs and exploit the welfare gains from (further) international division of labour. Such innovations are only partly included in R&D data. Consequently there is not much attention for these ‘trade innovations’—as we label them—in policy. In an empirical analysis this paper compares the influence of trade innovations with the influence of the stock of R&D on TFP in The Netherlands. The regression results show that in this country trade innovations are as important for TFP as technological innovations which directly affect the efficiency of production, which we label ‘product innovations’.      

On the R&D/marketing interface in knowledge intensive entrepreneurial firms

In this paper we focus on the performance impact associated with whether R&D or marketing takes the lead in product innovations and/or product development. We examine empirically the performance of a sample of entrepreneurial firms across 10 European Union countries for which we can identify alternative regimes in which R&D, or in which marketing, is viewed as being relatively more important in creating and sustaining the firm’s competitive advantage. We find that when R&D is the dominant strategy, firms realize greater growth in sales, other factors held constant.     

Incomplete regulation, market competition and collusion

Regulators often do not regulate all firms competing in a given sector. Due to product substitutability, unregulated competitors have incentives to bribe regulated firms to have them overstate their costs and produce less, thereby softening competition. The best collusion-proof contract entails distortions both for inefficient and efficient regulated firms (distortion ‘at the top’). But a contract inducing active collusion may do better by allowing the regulator to ‘team up’ with the regulated firm to indirectly tax its competitor. The best such contract is characterized. It is such that the unregulated firm pays the regulated one to have it truthfully reveals its inefficiency. We finally compare those contracts.     

How do firm characteristics affect behavioural additionalities of public R&D subsidies? Evidence for the Austrian transport sector

Interest of STI policies to influence the innovation behaviour of firms has been increased considerably. This gives rise to the notion of behavioural additionality, broadening traditional evaluation concepts of input and output additionality. Though there is empirical work measuring behavioural additionalities, we know little about what role distinct firm characteristics play for their occurrence. The objective is to estimate how distinct firm characteristics influence the realisation of behavioural additionalities. We use survey data on 155 firms, considering the behavioural additionalities stimulated by the Austrian R&D funding scheme in the field of intelligent transport systems in 2006. We focus on three different forms of behavioural additionality—project additionality, scale additionality and cooperation additionality—and employ binary regression models to address this question. Results indicate that R&D related firm characteristics significantly affect the realisation of behavioural additionality. R&D intensive firms are less likely to substantiate behavioural additionalities, while small, young and technologically specialised firms more likely realise behavioural additionalities. From a policy perspective, it may be concluded that direct R&D promotion of firms with a high R&D intensity may be misallocated. Attention of public support should be shifted to smaller, technologically specialised firms with lower R&D experience. The findings deliver important insights into interactions of public R&D support and R&D behaviour of firms operating in the Austrian transport sector, bearing significant implications for future policy designs.     

How does knowledge depth moderate the performance of internal and external knowledge sourcing strategies?

Management literature has consistently shown that knowledge is the most important source of competitive advantage for a firm. However, it is still not clear how knowledge can lead to competitive advantage, and how firms can find strategies to leverage their knowledge bases. This study considers the strategic implications of knowledge depth and three knowledge-sourcing strategies: R&D, strategic alliances and acquisitions. The main and interaction effects of these factors were tested in the context of the US technology firms. The results confirmed the strategic role of knowledge and external leveraging strategies. We also found that technology firms with weak knowledge depth should focus on internal R&D to accumulate knowledge in core technology areas, while those with strong knowledge depth should lower internal R&D intensity and shift their strategic resources to inter-firm alliances and acquisitions.     

The differential effects of public R&D support on firm R&D: Theory and evidence from multi-country data

This paper aims to evaluate the effects of various forms of public research and development (R&D) support on firms’ incentives to invest in R&D. First, in order to identify potential channels through which public R&D support influences firm R&D, a formal model of firm R&D with public R&D support is developed and analyzed. Four potential channels are identified: the technological-competence-enhancing effect, the demand-creating effect, the R&D-cost-reducing effect and the (project) overlap (or duplication) effect. These multiple channels indicate that it is difficult to evaluate the aggregate effect of public R&D support and that there are differential effects of public R&D support on firm R&D, depending on various firm- or industry-specific characteristics. Second, the differential effects of public R&D support are empirically tested using unique firm-level data for nine industries across six countries. Public support tends to have a complementarity effect on private R&D for firms with low technological competence, for firms in industries with high technological opportunities and for firms facing intense market competition. In contrast, firms with high technological competence and firms that have enjoyed fast demand growth in recent years show a crowding-out effect, and firm size and age do not show any discernible differential effect.     

Value and risk dynamics over the innovation cycle

This paper studies investment in intellectual capital and corresponding value and risk dynamics over the innovation cycle. We assume that the innovation cycle consists of three phases, R&D, trial, and market introduction phases. We use a real option investment model to characterize firm value and risk dynamics over the innovation cycle and find that firm value is the sum of the value of assets in place and non-linear option values related to breakthrough, exit, and market introduction options. Firm risk over the innovation cycle is highly non-linear and quite distinct in different phases. During the R&D phase risk is high as the firm faces high operating leverage originating from R&D fixed costs together with technological uncertainty. During the trial phase risk is significantly lower and dominated by option risk to launch the product in the market while after the introduction of the product in the market risk is equivalent to the asset risk of the company. Our model is consistent with the view that positive excess returns of R&D intensive firms are a compensation for risk. Based on this insight we derive several testable predictions.     

How does R&D intensity influence firm explorativeness? Evidence of R&D active firms in four advanced countries

Despite R&D is seen as a starting point of innovation, firms usually confront a trade-off in allocating limited R&D resources to either exploratory or exploitative activities. Relative to the latter, the former produces a more distinctive variation from the prior knowledge base and helps the firm tap into new opportunity. Given the increasing importance of firm explorativeness in the fast changing environments, the influence of R&D investment on firm explorativeness is not yet conclusive in the literature, not to mention whether the increased R&D investment induces firms to become more explorative. This study aims to generate insight into how and when firm explorativeness is determined by their R&D intensity. As a notion of the use of knowledge new to the organization, firm explorativeness is treated as the degree of using knowledge new to the organization in the pursuit of innovation. Based on a panel data of 1267 firm-year observations in four advanced countries during 1999–2003, the results reveal that a higher level of R&D intensity makes firms more exploitative and less explorative. Nevertheless, the negative relationship between R&D intensity and firm explorativeness is found to be alleviated in the presence of technological opportunity or financial slack. The configurational model sheds further light on the combined and relative weight of two moderators.     

Agglomeration in an innovative and differentiated industry with heterogeneous knowledge spillovers

This paper introduces an agent-based simulation model to study the technological development, the economic performance of firms and the evolution of agglomerations in a differentiated industry. The analysis is based on the interaction and behavior of firms, which might share knowledge but at the same time are competitors on the goods markets. Firms do not only compete with quantities they can also introduce process and product innovations. The level of knowledge of a firm describes the capabilities to perform innovations. Knowledge can be accumulated by investing in R&D and by knowledge spillover, which depend on geographical and technological proximity. Simulation runs show that there is an incentive to agglomerate in young industries and that geographical proximity enhances innovation, especially the number of product innovations.      

The impact of open innovation on firm performance: The moderating effects of internal R&D and environmental turbulence

Researchers have identified open innovation as two dimensions, external technology acquisition and external technology exploitation. This study explores the direct and interactive effects of these two dimensions on firm performance and further examines the moderation effects of two factors (i.e., internal R&D and environmental turbulence) on the relationship between both types of open innovation and firm performance. Based on Chesbrough's open innovation model, multi-item scales were developed to measure two dimensions of firm-level open innovation. Survey results of 176 Taiwanese high tech manufacturing firms provide support for most hypotheses. The result shows that external technology acquisition positively affects firm performance, whereas external technology exploitation does not. This study also finds that external technology acquisition strengthens the relationship between external technology exploitation and firm performance. Both external technology acquisition and external technology exploitation are positively related to firm performance under high internal R&D investment and a turbulent market environment. However, technological turbulence only positively affects the relationship between external technological acquisition, but not external technology exploitation, and firm performance. The findings contribute to enhanced understanding of how the degree of leveraging open innovation dimensions depends on their complementarity, internal R&D, and environmental turbulence.     

Reallocation and productivity growth in Japan: revisiting the lost decade of the 1990s

Hayashi and Prescott (Rev Econ Dyn 5(1):206–235, 2002) argue that the ‘lost decade’ of the 1990s in Japan is explained by the slowdown in exogenous TFP growth rates. At the same time, other research suggests that Japanese banks’ support for inefficient firms prolonged recessions by reducing productivity through misallocation of resources. Using the data on large manufacturing firms between 1969 and 1996, the paper attempts to disentangle the factors behind the slowdown in productivity growth during the 1990s. The main results show that there was a significant drop in within-firm productivity, the component that is not affected by reallocation of input and output shares across firms over time, during the 1990s. Although we find that misallocation among large continuing firms represents a substantial drag to overall TFP growth for these firms throughout the sample period, the negative impact of misallocation was least visible during the 1990s. The significant reduction in within-firm productivity growth suggests that, as the Japanese economy has matured, a policy which fosters technological innovations via greater competition, R&D, and fast technological adoption may have become increasingly important in promoting economic growth.

An analysis of firm-level innovation strategies in the US biotechnology industry

This study examines factors that may affect innovation strategies and performance of firms in the biotechnology industry. Specifically, differences between factors common to firms with high R&D intensity and those to firms with low R&D intensity are investigated. Biotechnology firms with relatively higher levels of R&D intensity attribute their innovation performance to research-based innovation factors and strategies such as strengthening their own research capabilities, entering into research collaborations with universities, industry leaders and other biotech firms, and licensing their technology. These strategies can be summarized as alignment within the industry. Firms with relatively lower R&D intensity have a hybrid focus—they invest in R&D but may also have products on the market. These firms attribute their innovation performance more so to production-based innovation factors and strategies such as gaining market access and maintaining connections with customers. Their strategy focuses on competitiveness, marketing, and distribution channels, while not ignoring the importance of a strong research base and the need to advance technologically. In a sense, strategies employed to achieve successful innovation reflect the stage of innovation in which a firm is operating for a particular product or process.     

Strategies for Technological Innovation with Learning and Adaptation Costs

This paper attacks the problem of developing strategies for a firm to deal with technological change. We show that the product market strategies of the firm—including pricing, product positioning, and rent preemption strategies—can play a role in the efficient search for technology-related information when information search is costly and there are adaptation costs due to the presence of agency. We utilize a dynamic model of spatial competition with uncertain technological innovations in which firms can learn from each other about technological developments. Private information and agency conflicts are shown to increase the effective information search costs of incumbents, who then use interfirm learning to their advantage in equilibrium. This viewpoint also allows us to see the role of mergers and acquisitions, subsidiary formation, and internal R&D labs in a new light. The more general point is that organizational structures and, in particular, the differential distribution of information within the organization impose constraints on the information-search and adaptation strategies of the firm, and the formulation of product-market and R&D strategies serves to relax these constraints.     

Knowledge acquisition processes during the incubation of new high technology firms

High technology incubators have been funded in universities by the UK government as part of the ‘third mission’ for higher education (DTI 2000a). The provision of such facilities is premised on the notion that new technology firms achieve success at least in part from the benefits of incubators as rich networked environments where specialist knowledge acquisition can occur. This paper presents a exploration of how this process takes place, based on a case study of the high-tech incubator at the University of Southampton. The paper shows that firm founders adopt different approaches to the networked environment provided by the incubator; in this case the shift from Directorial support to that embedding in external networks was significant as firms grew. Taking account of this process should enable incubator managers to develop practices that ensure firms gain maximum advantage from the available resources.     

Determinants of process innovation introductions: Evidence from 115 developing countries

This paper examines determinants of process innovation introductions across 115 (mostly) developing countries. Empirical research on process innovations lags behind product innovations. Accounting for firm characteristics, R&D, regulations and taxes, and corruption, results show that sole proprietors and R&D‐performing firms were more likely to introduce innovations, whereas greater prosperity made them less likely to do so. Corruption had a greasing effect, whereas firms in island nations were less likely to introduce, ceteris paribus. Effects of regulations and taxes and other firm characteristics were largely insignificant. Finally, some differences existed across manufacturing and service industries and across prevalence of innovation introductions.     

The U-shaped effect of R&D intensity on employee downsizing: evidence from Spanish manufacturing firms (1994–2010)

Abstract

This study explores an empirically untested issue: the relationship between the level of a firm’s R&D intensity and employee downsizing. Basing our conceptual development on the Resource-Based View of the firm, we argue that a linear relationship is a poor approximation of the proposed relationship. Instead, we find theoretical insights supporting the logic that employee downsizing decreases as firms shift from low to moderate levels of R&D intensity but increases as firms change from moderate to high levels. This prediction suggests that a U-shaped link is a better representation of the way in which a firm’s R&D intensity can affect downsizing. This hypothesis is tested and confirmed using a sample of Spanish manufacturing firms during the 1994–2010 period. We also propose a novel empirical tool (i.e. dynamic probit models) that is especially useful for addressing the potential endogeneity and simultaneity problem in studying this relationship. Implications for future research and practice are presented along with the conclusions of our findings.     

From mind to market: A global,dynamic analysis of R&D

Existing models of R&D are not easily reconciled with four observable aspects of R&D: initial technologies (ideas) need to be developed further, only a minority of initial ideas are successfully brought to the market, production and process innovations take place simultaneously (whereby, initially, there is no production at all), and process innovations are implemented for technologies that are destined to leave the market. We present a detailed bifurcation analysis for a dynamic model of R&D that captures these observations in one, unifying framework. As we provide a global analysis, we do not limit initial technologies to carry marginal costs that are below the choke price. We show that there always exists a critical value of initial marginal cost above which the firm does not initiate any (R&D) activity; the path to the saddle-point steady state is never globally optimal. We also sketch some tentative policy implications of our analysis.     

Dynamic R&D Competition, Research Line Diversity, and Intellectual Property Rights

This paper develops a simple model of sequential innovations with a diversity of research lines. Competitive strategies of firms for R&D are analyzed at each stage in a sequence of innovations. We compare two alternative regimes of enforcing patent law, as a mechanism to provide adequate incentives for R&D at each stage. The regime that protects the research line gives monopoly rights to an entire line of research, hence limiting the utilization of the previous knowledge and retarding subsequent innovations. The other regime protects the product, which facilitates the use of previous knowledge at the expense of providing inadequate protection to the ideas embodied in the product, and results in underinvestment in the first stage.