R&D and the patent premium

We analyze the effect of patenting on R&D with a model linking a firm's R&D effort with its decision to patent, recognizing that R&D and patenting affect one another and are both driven by many of the same factors. Using survey data for the U.S. manufacturing sector, we estimate the increment to the value of an innovation realized by patenting it, and then analyze the effect on R&D of changing that premium. Although patent protection is found to provide a positive premium on average in only a few industries, our results also imply that the premium varies across industries and with firm size. Patent protection also stimulates R&D across all manufacturing industries, albeit with the magnitude of that effect varying substantially.     

Appropriability and the retrieval of knowledge after spillovers

Research summary: Firms create and capture value through innovation. In technology‐driven firms, there has been an explicit emphasis on appropriability through imitation deterrence and cumulative inventions that build on prior firm innovation. We introduce systematic empirical evidence for a third mechanism of appropriability namely, knowledge retrieval, which is defined as the re‐absorption of previously spilled knowledge. We extend previous studies which consider technological complexity and organizational coupling as predictors of appropriability by examining their impact on knowledge retrieval. We find that technological complexity has a curvilinear relationship with retrieval while organizational coupling has a negative relationship. We discuss the implications of these findings for theories of absorptive capacity, organizational design and appropriability of innovation. Managerial summary: It is a widely held assumption that knowledge should be protected and held tightly within the firm to ensure value creation and value capture. The implicit recognition is that knowledge spillovers, or knowledge leakage, is detrimental to performance. By examining the patterns of citations among patents of 142 semiconductor firms, we study how organizational structure and technological complexity play a role. We find that moderate technological complexity improves appropriability. If imitation deterrence is paramount, then the optimal structure would be a tightly‐coupled organization. In other instances, loosely‐coupled organizations may be superior because they foster internal cumulative innovations and, if spillovers were to occur, they also maximize knowledge retrieval. Our findings suggest that all is not lost when spillovers occur and that firms can continue to benefit in downstream innovations. Copyright © 2015 John Wiley & Sons, Ltd.     

Measuring technological capability and performance

The relation between technological capability and firm performance is more complex than what is generally assumed. Researchers have not been able to consistently find empirical support for this apparently 'simple' relation. The objective of this study is to illustrate the theoretical and empirical complexity of this relation and explain why the use of different measures can lead to dramatically different results. In this study, we analyse the technological capability–performance relation in 201 large US public manufacturing companies. A variety of patent statistics and a measure of research & development (R&D) intensity are used as indicators for technological capability. The following six measures of performance are used as dependent variables: return on assets, return on equity, return on sales, market value, market value added, and economic value added. The results vary substantially, depending on which measures are used for the independent and dependent variables. A detailed understanding of precisely what each measure represents and the shortcomings of each measure is needed to explain why these differences exist. We conclude by discussing the effectiveness of a variety of technological capability measures using patent citations, and illustrate why a measure of R&D spending and the total number of patents are usually not valid measures of a firm's technological capability.     

Reputations for toughness in patent enforcement: implications for knowledge spillovers via inventor mobility

‘Job hopping’ by engineers and scientists is widely heralded as an important channel for knowledge spillovers within industries. Far less is known, however, about the actions firms take to reduce the outward flow of knowledge through markets for skilled labor. This study investigates the efficacy of a lever that has received little research attention: corporate reputations for toughness in patent enforcement. Drawing on unique data on enforcement activity, intra‐industry inventor mobility, and patent citations in the U.S. semiconductor industry, we find that a firm's litigiousness significantly reduces spillovers otherwise anticipated from departures of employee inventors, particularly when the hiring organizations are entrepreneurial ventures. Surprisingly, the deterrent effects of patent enforcement are similar in magnitude for firms located in California, a state characterized by open norms for knowledge trading, and firms headquartered in other U.S. states. The study sheds new light on the strategic actions firms use to prevent rivals from capturing value from their investments in human capital and research and development. Copyright © 2009 John Wiley & Sons, Ltd.     

FDI and quality-enhancing technology spillovers

When Northern firms undertake FDI in the South, their superior technology spills over to Southern firms and enables Southern firms to enhance their product quality. This paper explores quality-enhancing technology spillovers in an international duopoly model of vertical product differentiation. We find that the Northern firm strategically reduces its product quality to limit the amount of technology spillovers upon FDI. The trade-off between the Northern firm’s endogenous product quality choice and technology spillovers—similar to that between R&D and technology spillovers as discussed previously–plays a critical role in welfare consequences and policy implications of quality-enhancing technology spillovers.     

From Which Source Do Small Firms Derive Their Innovative Inputs? Some Evidence from Italian Industry

This paper relies upon the hypothesis that the “knowledge production function” – defined in the geographical sense – is characterized by coefficient estimates which vary with firm size. In particular, large firms depend for their innovative output on direct and indirect R&D inputs, whereas small firms more extensively exploit the spillovers from research activities carried out by universities and by other firms. This hypothesis is tested against two different sets of data: the first based on patent statistics and dealing with 20 Italian regions over the period 1978–86; the second consisting of a selected number of product innovations identified by a literature-based counting procedure and dealing with 46 Italian provinces in year 1989. The results of regression analysis support the hypothesis that firms belonging to different size classes resort to different sources for the knowledge relevant to their innovative output. In particular, industry R&D prove to play a relatively more important function than do spillovers from university research in generating innovative output in large firms, whereas the opposite is true in the case of small firms.     

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.     

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.     

The impact of stocks and flows of organizational knowledge on firm performance: an empirical investigation of the biotechnology industry

The knowledge‐based view of the firm is a recent approach to understanding the relationship between firm capabilities and firm performance. Specifically, this approach suggests that knowledge generation, accumulation and application may be the source of superior performance. Other research has conceptualized organizational knowledge in terms of stocks of accumulated knowledge in the firm and flows of knowledge into the firm. This paper tests the relationship between stocks and flows of organizational knowledge and firm performance in the biotechnology industry. We suggest that a firm’s geographic location, alliances with other institutions and organizations and R&D expenditures are representative of knowledge flows, while products in the pipeline, firm citations and patents are indicative of knowledge stocks. Through factor analysis, we develop an aggregated measure of location from several variables. A regression model suggests that location is a significant predictor of firm performance as are products in the pipeline and firm citations. A major contribution of this investigation is the operationalization of geographic location and its statistically significant link to firm performance. Copyright © 1999 John Wiley & Sons, Ltd.     

Gaining from scientific knowledge: the role of knowledge accumulation and knowledge combination

This study investigates the performance effect of scientific knowledge in the context of highly science‐dependent industry. Given the popularity of sourcing scientific knowledge from science community, the purpose of this study is to investigate which firms gain greater benefits from scientific knowledge. From the perspective of absorptive capacity and combinative capability, we argue that both knowledge accumulation and knowledge combination moderate a firm's ability to capture value from scientific knowledge. Empirical data come from paper and patent citations and financial information in biotechnology and pharmaceutical firms. Results show that scientific knowledge alone has a positive effect on firms' financial performance. A firm's tendency to combination familiar and older technological knowledge amplifies the positive effect of scientific knowledge. However, knowledge accumulation, including R&D investment and patent stock, does not boost the positive effect.     

Evaluating internal and external knowledge sources in firm innovation and productivity: an industry perspective

Both internal knowledge – investment in internal R&D and information and communication technologies (ICT) as well as external knowledge – knowledge spillovers and active collaboration with partners are rapidly fostering firm productivity and innovation. In this study, we investigate the role of internal and external knowledge in firm productivity and innovation. In addition, we test interactions between investment in R&D and ICT as well as between knowledge spillovers and knowledge collaboration in their association to firm innovation and productivity. We use a recombinant innovation approach and four samples for firms in manufacturing, creative, ICT and science, and professional services industries during 2002–2014 and for pre-and post-crisis periods to perform our analysis. In addition to innovation and productivity, we also examine the role of internal and external knowledge as a conduit to the development of innovation internally and the co-creation of innovation with external partners. Our results lead to managerial and policy implications.     

An empirical evaluation of the determinants of Research Joint Venture Formation

This paper empirically analyses the determinants of firm participation in Research Joint Ventures (RJVs). A review of the theoretical literature highlights the difficulty of identifying testable hypotheses. Using a large database of European RJVs, we estimate a participation equation at the firm level using the logit procedure. We find that sectorial R&D intensity, industry concentration, firm size, technological spillovers, and past RJV participation positively influence the probability of forming RJVs. By contrast, patents' effectiveness reduce the likelihood of RJV formation. Last, country fixed effects suggest that firms from larger countries are less likely to participate in cross–border RJVs.     

PROJECT CHOICE AND RISK IN R&D*

We introduce stochastic R&D in the Hotelling model and show that if the technical risk is sufficiently high, all firms focus on the most valuable market segment. We then endogenize technical risk by allowing firms to choose between a safe and a risky R&D technology. Firms either both target the most attractive market with at least one firm using the risky technology or they choose different niche projects and both apply the safe technology. R&D spillovers lead to more differentiated R&D projects and patent protection to less. Project coordination within an RJV implies more differentiation, and may be welfare‐improving.     

Geographic scope,isolating mechanisms,and value appropriation

Extending extant literature on geographic scope that has primarily focused on its role in value creation, I investigate the value appropriation aspect of geographic scope of knowledge acquisition. I maintain that isolating mechanisms created via geographic scope of knowledge acquisition can help firms prevent competitors from accessing their innovative knowledge and, by doing so, can help firms capture a larger proportion of economic returns from innovation, thus helping them enjoy better financial performance. Mediating and moderating effect analyses with patent‐ and firm‐level data of the semiconductor industry corroborate the value appropriation aspect of geographic scope. Copyright © 2014 John Wiley & Sons, Ltd.     

Spillovers in Space: Does Geography Matter?

Using U.S. firm level panel data we simultaneously assess the contributions to productivity of three potential sources of research and development spillovers: geographic, technological, and product market (“horizontal”). To do so, we construct new measures of geographic proximity based on the distribution of a firm's inventor locations as well as its headquarters. We find that geographic location is important for productivity, as are technology (but not product) spillovers, and that both intra and inter–regional (counties) spillovers matter. The geographic location of a firm's researchers is more important than its headquarters. These benefits may be the reason why local policy makers compete so hard for the location of local R&D labs and high tech workers.     

Those Who Know,Do. Those Who Understand,Teach. Disseminative Capability and Knowledge Transfer in the Automotive Industry

Innovations in the automotive industry are increasingly building on contributions from different technological fields. Correspondingly, firms in this industry more than ever tend to form research and development (R&D) alliances that aim at innovating new products through integrating separate fields and transferring knowledge. While, in symmetrical R&D alliances, each partner intends to ultimately maintain their distinctive and specialized knowledge base, overlapping knowledge facilitates cooperation and ultimately alliance success. Thus, the capability for knowledge transfer between partners is crucial in such R&D alliances. The literature provides ample evidence that such knowledge transfer is more likely to succeed if the recipient firm has absorptive capability. However, whereas the characteristics of the knowledge transfer process and the recipient firm are well understood, limited attention has so far been given to the issue of the knowledge source firm's ability to transfer knowledge to R&D alliance partners. This study focuses on the impact of source firm capability on successful knowledge transfer in R&D alliances. The study develops a theoretical framework of disseminative capability consisting of five dimensions and tests it on a sample of 59 projects in R&D alliances in the automotive industry. To ensure content validity and avoid common source bias, data were collected from both alliance partners. To test the hypotheses, multiple regression analyses were performed. The results reveal that the source firm's disseminative capability including the attainment of expert knowledge, assessing the recipient firm's knowledge base, and encoding knowledge are positively related to knowledge transfer success, while, surprisingly, detaching knowledge and support of knowledge application in the recipient firm are negatively related. Intentionally or unintentionally, disseminating knowledge across firm boundaries is widely perceived as detrimental to a firm's competitive advantage. Accordingly, the literature tends to downplay disseminative capability as an important means of exploiting external knowledge in collaborative settings. By demonstrating potential benefits for the source firm to transfer knowledge to the allying R&D partner firm, this paper reinvigorates the collaborative dimension in knowledge transfer. Further, the paper is the first of this kind to theoretically explain and empirically show that dimensions of disseminative capability of collaborators in R&D alliances are important for knowledge transfer, whereas disseminative capability is the complementary inverse of an organization's absorptive capacity.     

Conceptualizing and measuring capabilities: methodology and empirical application

This paper attempts to operationalize and measure firm‐specific capabilities using an extant conceptualization in the resource‐based view (RBV) literature. Capabilities are conceived as the efficiency with which a firm employs a given set of resources (inputs) at its disposal to achieve certain objectives (outputs). We expand on extant theoretical literature on relative capabilities, by delineating the conditions that have to be met for relative capabilities to be measured non‐tautologically. We then proceed to suggest an estimation methodology, stochastic frontier estimation (SFE), that allows us to infer firm capabilities. We illustrate this technique with a sample of firms in the semiconductor industry. Our findings underscore the heterogeneity in R& D capability across firms in this industry, as well as the persistence in these capabilities over time. We also find that the market rewards high R& D capability firms, in that they show the highest average values of Tobin's q. Copyright © 2004 John Wiley & Sons, Ltd.     

Patent characteristics and the age-value relationship: study of OceanTomo auctioned US singleton patents for the period 2006–2008

The article characterizes high and low value patents based on the non-linearity of the age-value relationship, as an attempt to provide some statistical understanding on the difference in the value of patent characteristics over time. A set of 138 US singleton patents, mainly from the computers and communication field, successfully auctioned by an US auction firm called OceanTomo during 2006–2008 forms the data. Analysis shows evidence of non-linearity in the patent age-value relationship and the sensitivity of patent characteristics to temporal dimension in explaining value of patented knowledge. The U-shaped temporal value of knowledge, identifying older patented knowledge as more valuable, thus, finds support. Furthermore, patents sold in their first half exhibit more lag, less patent scope and less forward citations. Patents sold by firms dominate the younger patent, while the older patent cohort finds more patents sold by individuals. These and other results are discussed for their significance for patent sale. We acknowledge the limitations of a small sample size. Nevertheless, the article provides statistical understanding on the potential characteristics of high and low value patents, explored through the non-linear age value dynamics.     

Rent appropriation of knowledge‐based assets and firm performance when institutions are weak: A study of Chinese publicly listed firms

Research summary : A firm's strategic investments in knowledge‐based assets through research and development (R&D) can generate economic rents for the firm, and thus are expected to affect positively a firm's financial performance. However, weak protection of minority shareholders, weak property rights, and ineffective law enforcement can allow those rents to be appropriated disproportionately by a firm's powerful insiders such as large owners and top managers. Recent data on Chinese publicly listed firms during 2007–2012 were used to demonstrate that the expected positive relationship between knowledge assets and performance is weaker in transition economies when a firm's ownership is highly concentrated and its managers have wide discretion. Moreover, rent appropriation by insiders was shown to vary with the levels of institutional development in which a firm operates. Managerial summary : Investing in knowledge‐based intangible assets (e.g., R&D) is an important value‐creation activity for the firm. Such value creation process can be facilitated by large shareholders and powerful managers, who can then take an advantageous position with critical insider information on these valuable intangible assets and therefore enjoy more opportunities to appropriate more value from them, leaving less value for other minority shareholders. The value distribution becomes increasingly skewed against minority shareholders when the institutional protection for them is weak. Indeed, in a large sample of Chinese publicly listed firms, we found that R&D investment becomes less positively associated with firm financial performance with the presence of large shareholders, high managerial equity, or CEO/Chairman duality, especially in Chinese provinces with weak institutional development. Copyright © 2016 John Wiley & Sons, Ltd.     

A Structural Empirical Model of R&D,Firm Heterogeneity,and Industry Evolution*

This article develops and estimates an industry equilibrium model of the Korean electric motor industry from 1991 to 1996. Plant-level decisions on R&D, physical capital investment, entry, and exit are integrated in a dynamic setting with knowledge spillovers. We apply the novel approximation of oblivious equilibrium to estimate the R&D cost, magnitude of knowledge spillovers, adjustment costs of physical investment, and plant scrap value distribution. Knowledge spillovers are essential to explaining the firm-level productivity evolution and the equilibrium market configuration. A $15\%$ R&D subsidy maximizes industry output and is broadly consistent with a past policy initiative of the Korean government.