Measuring Innovation in European Industry

This paper analyses the results of the 1993 Community Innovation Survey (CIS). Fifty per cent of European firms introduced a product or process innovation during 1990-92. The share of innovating firms varies between industrial sectors and firm size. The percentage of innovating firms is higher for large firms than for smaller ones. In high-tech sectors this share is two thirds and for traditional ones is one third. The largest part of firms' expenditure for innovation is linked to the adoption and diffusion of technologies through machinery and equipment, which absorbs 50% of firms' innovation expenditure. R&D activities represent, on average, 20% of total innovation expenditure while other innovative activities, such as design and trial production, account respectively for 10% and 11%. The mix of innovation inputs, especially R&D and investment, is strongly correlated with firm size, displays little change across countries and varies greatly across industries.     

R&D organization and technology transfer

In this paper we consider a Cournot duopoly model to examine the effects of licensing on R&D organization. When firms do cooperative R&D to share the cost of R&D, possibility of licensing can influence the decision on R&D organization. But, if the firms do cooperative R&D to avoid duplication in R&D process, possibility of licensing may influence the decision on R&D organization, provided one firm behaves like a Stackelberg leader in the product market.     

The asymmetric effect of warranty payments on firm value: The moderating role of advertising,R&D,and industry concentration

Changes in firms’ warranty payments are informative signals that enable investors to form timely expectations about potential changes in product quality. The authors’ survey shows that warranty payments affect potential investors’ product quality assessments and stock investment likelihood. Their quantitative analysis reveals an asymmetric stock market reaction: unanticipated increases in warranty payments (which signal quality “losses”) lower stock returns but unanticipated decreases do not affect stock returns. Two important factors moderate this relationship. First, boosting advertising spending attenuates the negative stock return effect of unanticipated increases in warranty payments. Second, unanticipated decreases in warranty payments, which signal quality “gains”, translate into higher stock returns when the industry has become less concentrated. Interestingly, changes in R&D spending do not moderate investors’ response to unanticipated increases or decreases in warranty payments. The authors advise firms to use advertising to lessen the harm from warranty payment increases and to strongly communicate warranty payment decreases in the face of intensified competition. The authors also caution that offering warranties in general does not ensure greater firm value as declining quality firms that myopically offer warranty programs experience lower firm value than those that do not provide warranties.     

R&D spending,strategic position and firm performance

Based on R&D investment data from Chinese listed manufacturing firms, this paper examines the effect of R&D spending on firms’ future performance conditional on their strategic positions. We find that firms pursing a product differentiation strategy have more R&D spending than those with a cost leadership strategy. In addition, we document a positive effect of R&D spending on firms’ future performance if they adopt a product differentiation strategy. Meanwhile, for the firms that adopt a cost leadership strategy, the relationship between R&D spending and firm performance resembles an inversed U-shape. Furthermore, we find this inversed U-shape relationship only exists for non-state-owned firms. Overall, this paper provides guidance and useful suggestions on the efficient allocation of R&D resources for Chinese manufacturing firms.     

Synergy between R&D and advertising on shareholder value: Does firm size matter?

Using the hierarchical linear model, we examine whether R&D and advertising and their synergy influence firm value. We also investigate whether firm size moderates the market value effects of R&D, advertising, and the synergistic effect of R&D and advertising on firm value. We find that R&D and the synergy between R&D and advertising have significant positive effects on shareholder value. Moreover, we find that the effects of R&D and advertising are significantly higher in large firms than small firms, while the synergistic effect is significantly positive in small firms but not in large firms. These results offer important insight for executives on the implications of resource allocation on R&D and advertising expenditures to create firm value. Copyright © 2016 ASAC. Published by John Wiley & Sons, Ltd.     

Uncertainties,Imitative Behaviours and Foreign R&D Location: Explaining the Over-concentration of Foreign R&D in Beijing and Shanghai within China

This study examines the location of foreign research and development (R&D) establishments in China and reveals that such facilities are overly concentrated in Shanghai and Beijing, the two first- tier cities. We argue that the spatial concentration of R&D in Shanghai and Beijing is more intense than what can be expected based on the spatial concentration of foreign investment, science and technology resources and general economic activities. The spatial concentration is also greater than what is observed in more developed countries. This degree of concentration cannot be convincingly explained by the conventional, rational choice model that relies mostly upon factors such as market size, labour costs and infrastructure, among others. Our analysis suggests that site location decisions are also the product of imitative behaviours among decision makers faced with uncertainties and multiple risks, particularly in a transitional economy such as China's. We further discuss the implications for second-tier cities in competition for foreign R&D investment, suggesting that these cities should aggressively market their cities to foreign investors in order to reduce the perceived risks undermining their ability to attract R&D. We also speculate that as foreign investors become more knowledgeable about the rest of China, more companies will begin to establish R&D facilities in such second-tier cities.     

R&D Policy Involving Consumer-Friendly Strategy: Cooperative and Non-Cooperative R&D

In a highly globalized economy, foreign exporting firms have initiatives to be consumer friendly for many reasons. The aim of the present paper is to endogenize consumer-friendly actions by the exporting firms, and explore how government’s industrial policy and firm’s R&D investment are affected by the strategy of foreign exporting firms under cooperative and non-cooperative R&D commitments in an international rivalry market. It finds that consumer-friendly action is a dominant strategy equilibrium, and no matter whether under cooperative or non-cooperative R&D, a consumer-friendly firm tends to invest less than does the purely profit-maximizing firm on R&D under symmetrical decisions. In the case of firms cooperating in R&D and involving consumer-friendliness in action, their governments need not intervene. On the other hand, governments always subsidize non-cooperative R&D activities, or cooperative but unfriendly firms. Furthermore, the consumer-friendly action will result in more (less) R&D subsidies by the exporting government when both firms non-cooperate (cooperate) in R&D. Finally, it is robust to indicate that the government of an importing country prefers friendly foreign firms in any circumstances. Above all, the equilibrium outcomes explain the crucial role of consumer-friendly strategy for industrial policies and R&D activities.     

Internal Versus External R&D: A Study of R&D Choice with Sample Selection

This paper extends previous analyses of the choice between internal and external R&D to consider the costs of internal R&D. The Heckman two-stage estimator is used to estimate the determinants of internal R&D unit cost (i.e. cost per product innovation) allowing for sample selection effects. Theory indicates that R&D unit cost will be influenced by scale issues and by the technological opportunities faced by the firm. Transaction costs encountered in research activities are allowed for and, in addition, consideration is given to issues of market structure which influence the choice of R&D mode without affecting the unit cost of internal or external R&D. The model is tested on data from a sample of over 500 UK manufacturing plants which have engaged in product innovation. The key determinants of R&D mode are the scale of plant and R&D input, and market structure conditions. In terms of the R&D cost equation, scale factors are again important and have a non-linear relationship with R&D unit cost. Specificities in physical and human capital also affect unit cost, but have no clear impact on the choice of R&D mode. There is no evidence of technological opportunity affecting either R&D cost or the internal/external decision.     

R&;D investment and financing constraints of small and medium-sized firms

This study tests for financial constraints on R&D investment and how they differ from capital investment. To identify constraints in the access to external capital, we employ a credit rating index. Our models show that internal constraints, measured by mark-ups, are more decisive for R&D than for capital investment. For external constraints, we find a monotonic relationship between the level of constriction and firm size for both types of investment. Thus, external constraints turn out to be more binding with decreasing firm size. On the contrary, we do not find such monotonic relationships for internal constraints. Differentiation by firms’ age does not support lower constraints for older firms.     

R&D innovation and the value of cash in the biotech industry

This study investigates how the market pricing of an additional dollar of cash held by biotech firms is conditional upon the industry's typical performance, R&D innovation. Under the proposed R&D innovation regime, I find i) an additional dollar of cash is priced higher if held by a firm with higher R&D innovation; ii) the role of R&D innovation is asymmetric depending on whether R&D activities move the drug discovery and development forward or backward; and iii) R&D innovation also differentiates the association between investment opportunities and value of cash observed by prior studies.     

The dynamics of exports and R&D in SMEs

A growing body of literature is exploring firm export and R&D activities. However, most studies examine the first one, whilst considering the second as an explanatory variable or vice versa. This paper contributes to this literature by exploring the joint dynamics of exports and R&D using data from a representative sample of small and medium-sized enterprises in Spanish manufacturing over the 1990–2006 period. The results confirm the existence of a strong interdependence between export and R&D activities. Indeed, engaging in export (R&D) activities will increase a firm’s chances of also engaging in R&D (export) activities. This, in turn, increases firms’ chances of succeeding in export (R&D) activities. Additionally, once we control for firm heterogeneity, strong persistence still remains in each activity due to true state dependence. The results are robust in the use of alternative measures of internationalization (i.e. imports) and innovative activities (product and process innovation).     

The impact of firm strategy and foreign ownership on executive bonus compensation in Japanese firms

Building on information-processing perspectives and the Japanese contextual factors, this study investigates the relationships between firm strategy and executive bonus pay as well as the moderating role of foreign ownership on the strategy-compensation relationship in Japanese firms. We focus on R&D investment and product diversification as strategy variables and investigate their direct effects on executive bonus pay. Further, we examine the moderating effects of foreign ownership on the strategy-pay sensitivity. The results, based on a sample of the 148 largest industrial firms in Japan for the 1990-1997 period, show that both R&D investment and product diversification are positively related to executive bonus pay. Our findings also indicate that foreign ownership negatively moderates the relationships between the strategy variables and executive compensation, suggesting that foreign investors play an active monitoring role, reducing cash bonus payments when their invested firms choose to increase R&D or pursue diversification strategy.     

A Dynamic Model of Oligopolistic Market Structure,Featuring Positioning Investments

In their efforts to create and maintain a position in a market, firms make positioning investments of various sorts, in R&D, plant, advertising, and location, or more generally, in product development and maintenance. In an environment where the success of positioning investments is stochastic, the positioning game played by firms that compete to serve a market is necessarily dynamic. We model the positioning and operating decisions of firms in an environment of this sort. When the market is large enough to support at least one active firm, in the steady state equilibrium, the expected number of firms serving the market at a point in time is a nearly continuous function of market size, in sharp contrast to the familiar integer-valued step function seen in classic models, and expected total and consumer surplus are higher than standard non-stochastic models would indicate. This suggests that the classic models are not always a sound guide for policy.     

Reassessing Firm Size in International Marketing Research

This study investigates the relevance and importance of firm size as a current research variable in international marketing while being cognizant of the reasons behind previous researcher's focus on firm size. Utilizing two different databases and analyses, this study integrates existing research on the effects of firm size variables on decisions in international marketing and draws a general conclusion. The main research questions center on whether firm size matters in internationalization decisions and whether firm size is a meaningful proxy for specific firm resources. Our results suggest that the effect of size on internationalization becomes less significant over time and that the effect of firm size on choice of ownership is significantly less than that of other firm-specific variables such as R&D intensity and advertising intensity, suggesting that strategic international marketing decisions are more related to a firm's unique assets than to its size.     

Absorptive capacity from foreign direct investment in Spanish manufacturing firms

This paper deals with the determinants of absorptive capacity from foreign direct investment (FDI) spillovers. We study how firm behavior, capabilities, and structure drive absorptive capacity such as research and development (R&D) activities and expenditures, R&D results, internal organization of innovation, external relationships of innovation, human-capital quality, family management, business complexity, and market concentration. Our results enhance and complement previous evidence of the determinants of absorptive capacity, particularly with different approaches to innovative activities as mediators of the capability.     

Are entrepreneurs special? Evidence from board appointments

As shown in previous studies, founder-led firms perform better than those run by professional managers. Does this reflect the special relation of founders to their firms or do entrepreneurs possess attributes and experiences that are valuable even at firms not founded by them? Drawing on the resource-based view of the firm, we study this question by evaluating the effect of entrepreneurs who serve as outside directors of other firms. We find that the stock market reacts positively to appointments of outside entrepreneur directors and that firms with these directors have higher long-term value as measured by Tobin's q. Entrepreneur directors are also associated with increased R&D investment and higher sales growth, and their effect on firm value is larger among firms in R&D-intensive and competitive industries. We conclude that outside entrepreneur directors enhance firm value through their propensity to take risk and their ability to anticipate demand patterns and create new markets.     

Antecedents and financial impacts of building brand love

Brand love has garnered increasing interest among practitioners and scholars, but little is known about how marketing actions drive brand love, and whether and how brand love transmutes to firm profitability. Using longitudinal brand love data collected from more than 20,000 customers of 152 corporate brands and financial data of firms who own these brands during 2006–2017, the authors examine the antecedents and financial impacts of building brand love. The results show that advertising investments help firms build brand love with diminishing returns after reaching an optimal point, whereas R&D investments positively contribute to brand love. The analyses further show that although brand love does not affect firm profitability and market value in the short term, it increases firm profitability and market value in the long term. More important, the results indicate that the positive effect of brand love on firm performance is stronger for hedonic brands, for firms in product categories that matter greatly to consumers, and those operating in highly competitive markets. Overall, the findings have important implications for marketing theory and provide actionable insights for managers into how to build and manage brand love.     

Overcoming the double hurdles to investing in technology

Technological activities of small and medium-sized enterprises (SMEs) have received considerable attention from researchers and policy makers since the mid-1980s. Small firms could nurture entrepreneurship and facilitate the creation and application of new ideas. In spite of their potential in generating innovations, it is also observed that SMEs shy away from formal R&D activities, and the firm size itself seems to be a barrier for R&D activities. SMEs operating in developing countries face extra hurdles to investing in R&D. Given the massive share of SMEs, it becomes crucial to realize their developmental potential in developing countries. In this paper, we study the drivers of R&D activities in SMEs in Turkish manufacturing industries by using panel data at the establishment level for the 1993–2001 period. Our findings suggest that SMEs are less likely to conduct R&D, but if they overcome the first obstacle of conducting R&D, they spend proportionally more on R&D than the LSEs do. R&D intensity is higher in small than in large firms. Moreover, public R&D encourages firms to intensify their R&D efforts. The impact of R&D support is stronger for small firms.     

Performance, Internationalization, and Firm-specific Advantages of SMEs in a Newly-Industrialized Economy

In light of the lack of empirical evidence regarding issues of internationalization as they affect small and medium-sized enterprises (SMEs) from newly-industrialized economies (NIEs), this study aims to expand the applicability of existent internationalization theories. So far, such theories have largely been developed with MNCs from industrialized economies in mind. In examining a 1996 sample of 1,419 Taiwanese SMEs, we found that the relationship between internationalization and performance could be graphically depicted as one of inverted U-shaped curvilinearity, and that a specific level of internationalization corresponded to maximum profitability. Our empirical findings also confirmed a relationship of U-shaped curvilinearity between advertising investment and performance, indicating that a minimum level of investment is required in order for advertising to be effective. Investments in research and development (R&D) were also shown to be positively associated with firm performance. The external validity of our internationalization theories regarding SMEs from NIEs was generally supported, though some modifications allowing for consideration of the particular context of individual SMEs will ultimately become a necessity.     

Globalization of R&D and China: An Introduction

In this introduction, we discuss the recent changes in multinational corporations' (MNCs) research and development (R&D) strategies and China's rising role in this new development. Significant changes include: 1) More and more corporations have started overseas R & D operations; 2) the missions of many overseas R&D facilities have shifted from the traditional supplementing and supporting roles to become critical and strategic components of MNCs' global R&D networks; and 3) MNC overseas R&D operations have expanded their geographic reach to carefully selected developing countries. China has benefited from such changes and has become one major attraction for such R&D facilities due to its rich endowment of low-cost and well- trained scientists and engineers as well as its fast growing domestic market and burgeoning foreign investment in manufacturing. The explosion of foreign R&D investment has also been accompanied by the rapid growth of China's domestic investment in R&D. The growth in both domestic and foreign investment in R&D implies that China will improve its position in global economic and technological competition. However, it is unclear to the rest of the world about the implications of China's rising R&D and whether or not China can capture the value from the presence of foreign R&D centres. We conclude that issues related to China's science and technology development in general and foreign R&D in China in particular warrant more research in the future.