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.     

Risk abatement as a strategy for R&D investments in family firms

The behavioral agency model suggests family firms invest less in R&D than nonfamily firms to protect their socioemotional wealth. Studies support this contention but do not explain how family firms make R&D investments. We hypothesize that when performance exceeds aspirations, family firms manage socioemotional and economic objectives by making exploitative R&D investments that lead to more reliable and less risky sales levels. However, performance below aspirations leads to exploratory R&D investments that result in potentially higher but less reliable sales levels. Using a risk abatement model, our analyses of 847 firms over 10 years supports our hypotheses. Copyright © 2013 John Wiley & Sons, Ltd.     

Why some firms never invest in formal R&D

In this paper we study the frequency of formal R&D investments. We link real options theory to the knowledge‐based view to explain how a firm's knowledge resources influence its frequency of investing in R&D to establish technological options. Specifically, we propose that a firm that lacks internal knowledge resources is more likely to never invest in R&D, a firm that has both internal and external knowledge resources is more likely to sometimes invest in R&D, while a firm that has internal knowledge resources but lacks external knowledge resources is more likely to always invest in R&D. Copyright © 2010 John Wiley & Sons, Ltd.     

The Effects of Knowledge Depth and Scope on the Relationship between R&D Alliances and New Product Development

In this study, we extend the new product development (NPD) literature that proposes that firms' knowledge depth, defined as the reuse of well understood technical knowledge, and scope, defined as the use of newly acquired technical knowledge, and new knowledge accessed from R&D alliances all positively impact NPD. Building on the knowledge‐based view of the firm, we posit that the impact of firms' R&D alliances is limited when their internal knowledge depth and scope are adequate for NPD needs. We suggest that although firms form R&D alliances to gain the right to access external knowledge of R&D alliance partners, they are not obligated to invest in resources to integrate external knowledge from R&D alliances. We propose that they wait to see if their internal knowledge depth and scope prove sufficient for NPD. If the external knowledge proves to be unnecessary, firms choose not to invest the resources required to integrate this knowledge with their internal knowledge. Alternatively, we suggest an increased impact of R&D alliances on NPD when firms are more limited in their internal knowledge depth and scope. We propose that when knowledge depth and scope prove insufficient, firms make the additional investments required to integrate external knowledge from R&D alliances with their internal knowledge stock. This reasoning is consistent with real options theory as it has been applied in alliance research, where strategic alliances are characterized as real options. We find support for our hypotheses using panel data of 738 firm year observations for 143 U.S. biopharmaceutical firms operating in 2007. Our study contributes to the NPD literature and suggests new directions for future research.     

R &D investments and profitability during the crisis: evidence from Greece

Innovation and Research and Development (R&D) investments have been considered in the literature as a significant determinant of corporate development and sustainability. Previous studies have examined the impact of intangibles on financial performance but not extensively within economic environments of intense financial turmoil. The scope of this study is to shed further light on this issue and examine whether R&D investments had an impact on the profitability of Greek firms especially during the sovereign debt crisis. We collected a sample of Greek corporations that have capitalized their R&D investments and paid significant amounts on R&D expenses during the period 2003–2016. Panel regression results indicated that R&D investments and R&D expenses had a negative impact on the profitability of sample firms before the crisis, but during the crisis (2011–2016) firms which managed to sustain or enhance their level of R&D investments achieved to improve their profitability. These findings corroborate our hypotheses that during a period of limited lending and hearse financial turmoil, R&D investments could be a vital tool for sustaining firms' financial performance. The study offers useful implications for managers and regulators, and contributes to the ongoing debate about the impact of R&D investments on corporate performance.     

Who does private equity buy? Evidence on the role of private equity from buyouts of divested businesses

Research Summary: We examine the role of nonventure private equity firms in the market for divested businesses, comparing targets bought by such firms to those bought by corporate acquirers. We argue that a combination of vigilant monitoring, high‐powered incentives, patient capital, and business independence makes private equity firms uniquely suited to correcting underinvestment problems in public corporations, and that they will therefore systematically target divested businesses that are outside their parents’ core area, whose rivals invest more in long‐term strategic assets than their parents, and whose parents have weak managerial incentives both overall and at the divisional level. Results from a sample of 1,711 divestments confirm these predictions. Our study contributes to our understanding of private equity ownership, highlighting its advantage as an alternate governance form. Managerial Summary: Private equity firms are often portrayed as destroyers of corporate value, raiding established companies in pursuit of short‐term gain. In contrast, we argue that private equity investors help to revitalize businesses by enabling investments in long‐term strategic resources and capabilities that they are better able to evaluate, monitor, and support than public market investors. Consistent with these arguments, we find that when acquiring businesses divested by public corporations, private equity firms are more likely to buy units outside the parent's core area, those whose peers invest more in R&D than their parents, and those whose parents have weak managerial incentives, especially at the divisional level. Thus, private equity firms systematically target those businesses that may fail to realize their full potential under public ownership.     

Family Ownership and R&D Intensity in Small‐ and Medium‐Sized Firms

Research was largely consistent in predicting a negative relationship between family ownership and research and development (R&D) intensity until Chrisman and Patel, using a behavioral agency model (BAM), called this general assumption into question. They argued that publicly owned family firms typically invest less in R&D than nonfamily‐owned firms. This behavior may however be reversed if economic performance levels are below family aspirations or if family long‐term goals, such as pursuing strong transgenerational family control, are highly valued. While most researchers, like Chrisman and Patel, primarily focused on large listed firms, more research on the relationship between family ownership and R&D intensity in privately held small‐ and medium‐sized enterprises (SMEs) is required. This is because firm size can play an important role in understanding the innovation management behavior of firms. Building on the BAM perspective, in the present paper it is argued that Chrisman and Patel's results can be extended to the context of SMEs, albeit with one important specification: the relationship between family ownership and R&D intensity is likely to be contingent on the way the family has invested its wealth. Specifically, it is contended that in the context of SMEs, where goals are more fluid and mixed, when there is a high overlap between family wealth and firm equity (i.e., most of the family's wealth is invested in the firm) the relationship between family ownership and R&D intensity is negative because of the family owners' greater desire to protect their socioemotional wealth (SEW). However, if the overlap between the family's total wealth and single firm equity is low (i.e., firm equity is just a small part of the total family wealth), the relationship between family ownership and R&D intensity is positive as the low overlap between family wealth and firm equity reduces the family's loss aversion propensity. In such a situation, family ownership is likely to foster R&D intensity because of the long‐term orientation of family owners that increases the family firm's propensity to bear the risk of investing in R&D activities. The hypothesis is tested and confirmed in a study of 240 small‐ and medium‐sized firms based in Italy. The paper contributes to the literature in several ways. First, adding to the literature on innovation management and R&D intensity, it increases the understanding of what drives or inhibits R&D investments in SMEs when a family is involved in the ownership of the firm. This is particularly important because research on innovation management, as well as research on R&D intensity in family firms, is primarily focused on large firms and much less on SMEs. Second, the study complements arguments from prior research on the correlates of R&D intensity in large listed firms, showing that the BAM and SEW perspective offer a theoretical framework that is also able to illustrate the complex nature of innovation management in the context of SMEs. Third, the study contributes to research on the effects of family ownership on the general functioning of a firm. In particular, it provides new insights into how family ownership may affect R&D intensity.     

Beyond invention: the additive impact of incubation capabilities to firm value

Incubation is a process whereby the firm nurtures breakthrough discoveries and inventions to test their potential as new business platforms. The recent emergence of organizational roles associated with innovation incubation shows that internal incubation is becoming recognized as an important organizational capability. This development also suggests that firms that invest in discovery for competitive advantage recognize a need to leverage that investment more fully. While case studies describe incubation activities and note their importance, empirical research linking this capability to firm performance is limited. The current study represents an initial attempt at exploring the relationship empirically. Our main finding is that financial markets have difficulty valuing a firm's exploratory discovery investments and that the presence of an incubation capability positively moderates the impact of such investments on firm market valuation. The implication of this result is that investments in certain types of R&D may be suboptimized if there is not a parallel investment in a capability to incubate the opportunities that arise from potentially breakthrough inventions.     

How to leverage the impact of R&D on product innovation? The moderating effect of management innovation

Although research and development (R&D) is a key indicator of (technological) innovation, scholars have found mixed results regarding its effect on product innovation and firm performance. In this paper, we claim that variations in R&D effectiveness can be explained by changes in a firm’s social system, in particular in its management innovation. It is still unclear how management innovation influences R&D effectiveness in terms of product innovation. In this study, we address this theoretical and empirical gap in the innovation literature. Our theoretical arguments and findings from a large-scale survey among Dutch firms show that R&D has a decreasingly positive relationship with product innovation, particularly for firms with low levels of management innovation. However, in firms with high levels of management innovation, this relationship becomes more J-shaped, especially in small and medium-sized firms. Our findings also appear to indicate that management innovation may be more important for competitive advantage than just R&D. Overall, our insights reveal that management innovation is a key moderator in explaining firms’ effectiveness in transforming R&D into successful product innovation.     

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.     

Managing liquidity in research‐intensive firms: signaling and cash flow effects of patents and alliance activities

The effective holding and management of liquid assets is critical to success in research‐intensive industries. The primary output of invention is new knowledge. However, because of its ‘sticky’ characteristics, knowledge may not easily diffuse to external shareholders, leading to knowledge asymmetries between managers/employees and external suppliers of capital. Many valuable R&D projects may thus fail to attract external financing, limiting a firm's ability to invest in R&D. In this study, we examine how the cash flow and signaling properties of a firm's patents and certain aspects of its alliance strategy can attenuate such problems. Specifically, we suggest that a firm's R&D investments positively predict the level of its liquid asset holdings. This is due to the fact that invention‐induced knowledge asymmetries increase the firm's cost of accessing external liquid capital. However, holding cash entails opportunity costs. In this regard, we also find that patent production and certain alliance activities provide important signaling mechanisms, which reduce knowledge asymmetries between the firm and capital markets, and consequently lower the firm's need to hold liquid assets. Empirical tests were conducted using a sample of 108 U.S‐based biotechnology firms. Copyright © 2009 John Wiley & Sons, Ltd.     

Make,buy, organize: The interplay between research,external knowledge,and firm structure

We bridge current streams of innovation research to explore the interplay between R&D, external knowledge, and organizational structure—three elements of a firm's innovation strategy, which we argue should logically be studied together. Using within‐firm patent assignment patterns, we develop a novel measure of structure for a large sample of American firms. We find that centralized firms invest more in research, and patent more per R&D dollar, than decentralized firms. Both types access technology via mergers and acquisitions, but their acquisitions differ in terms of frequency, size, and integration. Consistent with our framework, their sources of value creation differ: while centralized firms derive more value from internal R&D, decentralized firms rely more on external knowledge. We discuss how these findings should stimulate more integrative work on theories of innovation. Copyright © 2013 John Wiley & Sons, Ltd.     

Profitability Goals,Control Goals,and the R&D Investment Decisions of Family and Nonfamily Firms

Research and development (R&D) investments can help build sustainable competitive advantages and improve firm performance. Nevertheless, managers also acknowledge the difficulties associated with managing R&D and the low chances of success of innovation programs. For this reason, researchers have long been interested in understanding how managers make R&D investment decisions. Research grounded in the behavioral theory of the firm suggests that a primary driver of R&D investment decisions is profitability: when profitability goals have not been met, managers are more likely to initiate a problemistic search through increasing R&D investments. While emphasizing profitability goals and their relationship with R&D investments, prior research largely downplays the role of goals beyond profitability that exist in a significant number of firms (family firms) that are owned and managed by family members whose primary concern is preserving their control over the organization. Research indicates that these family‐centered noneconomic goals lead family managers to minimize R&D investments and that the coexistence of multiple goals produces highly variable R&D investment behavior. Yet, how family‐centered goals for control and profitability enter decision‐making in family firms is not fully understood. In this study, we propose that family managers form distinctive reference points that capture supplier bargaining power and are used to evaluate the degree of external obstruction to their managerial control. The empirical analysis of panel data on 431 private Spanish manufacturing firms observed over the period 2000–2006 shows that the importance of profitability and control goals follows a sequential logic in family firms, such that family firms react more strongly to increasing supplier bargaining power when their profitability reference points have been reached. This study extends current understanding of the distinctive organizational processes engendered by family management in business organizations leading to new research opportunities at the intersection of the innovation management and family business literatures.     

Does international research and development increase patent output? An analysis of Japanese pharmaceutical firms

Internationalizing research and development is often advocated as a strategy for fostering the development of technological capabilities. Although firms conduct international R&D to tap into knowledge bases that reside in foreign countries, we argue that in order to benefit from international R&D investments firms must already possess research capabilities in underlying or complementary technologies. We examine the international R&D expansion activities, research capabilities, and patent output of 65 Japanese pharmaceutical firms from 1980 to 1991. We find that firms benefit from international R&D only when they possess existing research capabilities in the underlying technologies. In addition to refining our understanding of when international R&D enhances firm innovation, our results integrate asset‐seeking and asset‐based theories of foreign direct investment. Internationalizing R&D to tap into foreign knowledge bases is consistent with asset‐seeking theories of foreign direct investment, while the contingent nature by which firms benefit from international R&D is consistent with asset‐based theories of foreign direct investment and the notion of absorptive capacity. Copyright © 2004 John Wiley & Sons, Ltd.     

Allocation of inventive effort in complex product systems

This paper examines the allocation of inventive effort in complex product systems. I argue that complex product systems, e.g., personal computers (PCs), are distinguished by functional interaction among several components, each guided by a relatively autonomous bundle of technical and economic characteristics. I try to explore whether the dynamics of such interactions between components of complex product systems can help us understand changes in the relative allocation of inventive effort. I advance and empirically test three hypotheses: (1) emergence of component constraints (bottlenecks) in product systems will trigger research and development (R&D) investment to resolve the constraints; (2) slack component firms have a strong incentive to invest in resolving component constraints; and (3) the incentive of slack component firms to invest in resolving component constraints is increasing in their prior sunk R&D investments in slack components. In sum, I argue that interactions between components in a product system conditions the R&D incentives of firms and also that the incentives are increasing in their prior investments or capabilities. Using product reviews from technical journals, I trace the constraint components in the PC from 1981 to 1998 and attempt to predict shifts in the allocation of inventive effort in the subsequent period. The empirical results strongly support all three hypotheses. This study highlights the paradoxical effect of modularity in complex product systems. Modular design architectures, while contributing to accelerating the pace of technical change, also tend to limit the economic benefits of firms' component R&D efforts, especially when different components technologies are progressing at different rates. This often creates an impetus to enlarge the scope of firm R&D activities beyond the component product markets that firms operate in. Other implications for R&D decision making are discussed. Copyright © 2007 John Wiley & Sons, Ltd.     

How Do Interaction Activities among Customers and between Customers and Firms Influence Market Performance and Continuous Product Innovation? An Empirical Investigation of the Mobile Application Market

Mobile application markets (MAMs) significantly differ from other existing marketplaces at least in two aspects. First, customers (app users) and firms (app providers) frequently interact with each other in real time, which is not common in the conventional marketplaces. Second, many app providers incorporate customers’ opinions or suggestions into their software upgrades, representing one of the most unique and interesting aspects of MAMs. Therefore, it has become critical to understand the impact of interaction activities not only among customers, but also between customers and firms on the market performances of new products in MAMs. One of the most significant issues firms face is whether firms reflect on customers’ postpurchase interaction activities, and the next interesting question is how firms respond to them. This study explores the effects of customer‐to‐customer (C2C), customer‐to‐firm, and firm‐to‐customer interaction activities on market performance. In addition, this study investigates how communication activities influence a firm's tendency to pursue continuous product innovation through research and development (R&D). Using data obtained from a major MAM, T store, three models that are respectively related to product sales, product lifetime, and a firm's R&D activity for product upgrades, are applied to empirically test hypotheses concerning the effects of interaction activities. In our analyses of market performance, a hierarchical log regression model with 10,840 weekly transactions data set related to product sales (model A) and 291 aggregate transactions related to product lifetime (model B) is used. Results indicate that C2C and customer‐to‐firm communication activities have a positive impact on sales, but little relationship with product lifetime. However, a firm's continuous product R&D has a positive impact on both sales and lifetime performance. Our analysis of a firm's R&D (model C) shows that C2C and customer–firm communication increases a firm's R&D activity. Taken together, these results have important implications for customer–firm interactions, market performance, and R&D strategies.     

Effects of R&D policy choice on accounting performance and market value

Using primary data that was gathered from the annual reports of companies listed in the Chinese Stock Exchanges, this study analyzes and compares the different effects of R&D policy choice on their accounting performances and market values. For the period 2007 through 2014, the results show that different R&D policy choices provided different implications in firm value and firm strategy to the market. Specifically, the firms choosing to capitalize their R&D investments have higher market value, implying that the strategy was focused on sustaining their long-term development. On the contrary, the companies selecting to expense their R&D expenditure have higher accounting performance and the focus was on improving short-term gains. The results of this study suggest that the policy choice on R&D capitalization and expensing is a trade-off result between the accounting performance and the market value of a firm.     

The Unequal Effect of India's Industrial Liberalization on Firms’ Decision to Innovate: Do Business Conditions Matter?

Product‐market competition can boost industry growth if firms invest more in innovation. Using a natural policy experiment, the removal of India's License Raj, we show that firms in liberalized industries were 9% more likely to invest in R&D than firms in non‐liberalized industries. However, the impacts were not the same across firms of different size. After the reforms, firms in the top quartile were 23% more likely to invest in R&D than those in the lowest size quartile. Both productivity differences across firms and the heterogeneous impacts of business conditions on firms explain unequal effects of India's industrial liberalization reform.     

Financing behaviour of R&D investment in the emerging markets: the role of alliance and financial system

This paper examines the financing behaviour of research and development (R&D) investments in emerging markets. Drawing on institutional theory and using panel data of generalized methods of moment estimation for a sample of 302 firms from 20 countries during the period 2003–2015, we find that emerging market firms tend to use internal funds for financing R&D investments. Interesting results emerged when the sample was divided as alliance and non‐alliance firms, and bank‐based and market‐based financial systems. The results show that R&D financing behaves differently for alliance and non‐alliance firms. Alliance firms use both internal and external funds for R&D investments, while non‐alliance firms do not use external funds. We also document that a country's financial system influences the choice of available sources of finance. Firms from countries that follow a bank‐based financial system tend to rely on external funds while firms from countries that follow a market‐based financial system depend more on internal funds for financing R&D investments. This study is important as it provides new evidence on financing R&D investments in emerging countries taking into account the institutional arguments of financing choices, and so should guide stakeholders about appropriate sources of R&D financing.     

Who Benefits from Training and R&D,the Firm or the Workers?

The present paper offers a novel study of the effects of intangible assets on wages and productivity. Training, R&D and physical capital are all taken into account, and their joint effects are examined. We use panels of firms in order to control for unobserved fixed effects and the potential endogeneity of training and R&D, using data for France and Sweden. The estimation of productivity and wage equations allows us to show how the benefits of investment in physical capital, training and R&D are shared between the firm and the workers. We found that firms indeed obtain the largest part of the returns to their investments, but their share is relatively lower for intangible assets (R&D and training) than for physical capital.