Does R&D spending boost tangible investment? An analysis on European firms

This article investigates the relationship between firm’s R&D intensity, expressed as R&D expenditure over sales, and investment intensity in tangible assets. It is commonly acknowledged that R&D requires additional physical investment to be implemented. R&D increases a firm’s productivity and return to tangible investments, thus, providing to the firm incentives to bear high tangible capital costs and to invest more. This represents a crucial issue for a firm’s growth, particularly considering the strong interaction between physical capital accumulation and technological progress. The analysis is based on a large sample of manufacturing firms across seven European countries in the period 2007–2009. Since the sub-sample of firms performing R&D might not be random, there may potentially be an endogeneity issue. The analysis also considers that firms may decide to spend on R&D and investment in physical capital simultaneously. The questions of both endogeneity and simultaneity are dealt with by employing an instrumental variable two-step procedure. We find a positive and significant impact of R&D intensity on firms’ tangible investment intensity. The econometric results highlight the importance of financial factors, particularly with respect to firms’ internal resources. Exposure to international trade has a negative impact on investment, possibly depending on the time-span of the sample used.

Abbreviations: Technological Innovation and R&D; Investment Capital; Industry Studies; Firm Behavior; Empirical Analysis     

The Geoeconomics/Politics of Italy’s Investment Promotion Community

ABSTRACT

Through an historical analysis, this article discusses outward investments promotion as an underexplored aspect of geoeconomics. The empirical focus is on Italy’s institutional support to the internationalization of firms from 1992 to 2015, between the post-socialist transformation of Central and Eastern Europe and the years following the global crisis of 2008. The main argument is that large geopolitical events led to complex interactions between Italy’s firms and policymakers. These interactions reshaped Italy’s geo-economic strategies as well as territorialities. The article identifies the emergence and consolidation of a group of public, semi-public and private actors, thus building a new model of an investment promotion community (IPC). It finds that (a) the IPC emerged to provide an institutional infrastructure necessary to project Italy’s sovereignty beyond national boundaries and (b) in so doing, the elites involved interpreted firms’ needs within broader political issues. Thus, the emergence of the IPC represents a shift from geopolitics to geoeconomics.     

Human capital and firms’ innovation: evidence from emerging economies

ABSTRACT

We explore the relationship between human capital and firms’ innovation in emerging economies. Most papers consider the formal knowledge developed in R&D laboratories as a major source of innovation. However, a critical portion of knowledge required for innovation resides in human resources and is created outside any formalised R&D activity. We consider that, to improve their technological capabilities, firms should invest in different forms of human capital, namely highly educated workforce and experienced managers, but also in strategic human resource (HR) practices aimed at developing human capital by increasing employees’ firm-specific technical skills and competences. Besides looking at the type of innovation outcomes, we place greater emphasis on the strategies of innovation development, as these should signal an improved firms’ ability, not just to innovate, but to put their own creative effort in the development of innovation. Our results contrast with the traditional view of firms in emerging economies as mainly relying on the external acquisition of innovations, by showing their actual ability to develop new technologies. In this respect, HR practices aimed at fostering employees’ learning and autonomy at work appear more important than the educational attainment of workers, whilst the experience of managers does not seem effective.     

Risks and opportunities for the progress of digitalization in Mexico

ABSTRACT

The aim of this research is to identify Mexico’s current conditions for the incorporation of the changes derived from the processes of increasing digitization into its productive sector, called Industry 4.0. To achieve this goal, this work uses the results obtained from a survey questionnaire answered by qualified technological and productive informants with the purpose of identifying the perspectives of firms initiating this transformation. The selection of information units was based on a theoretical sample (not statistically representative), a methodological feature that forced us to analyze carefully the data collected. The results reached show that, from the perspective of the actors involved, the innovative structure in Mexico presents serious limitations in terms of technical and organizational capabilities of the firms to incorporate digital technologies in their production processes. This paper proposes a first exploratory analysis on the visions of Mexican firms and intermediary organizations that deals with the increasing technical and organizational challenges of the new digital technologies. This article provides analytical and empirical inputs for the analysis of the opportunities that Mexican firms have to incorporate these new technical trends. Finally, the work highlights critical institutional and governance aspects for the debate of national industrial and innovative policy agendas.     

A Resource-based View of Innovativeness in Small Firms

The resource-based view is presented here as the theoretical framework for empirical research on the determinants of technological innovativeness in small firms. These determinants include the characteristics of the owner/manager (O/M) and the firm and some technological assets (resources and capabilities). Evidence based on case studies is used for the evaluation of their effect on innovativeness and their interaction. The study highlights the key role of the O/M and the importance of some of his/her characteristics. It also shows the impact of certain resources and capabilities. The O/M emerges as the orchestrator of resource accumulation and capability development in the innovative firms.     

Heterogeneity in learning processes and the evolution of dynamic managerial capabilities as a response of emergence of biosimilar market: evidence from the Indian pharmaceutical industry

ABSTRACT

This paper examines heterogeneity in the response of Indian firms to the emergence of a new segment in the pharmaceutical generics market – biosimilars. The necessary diversity of the knowledge base and regulatory requirements underlying biosmilar products have created significant technological capability and market access challenges for Indian firms. This is but the latest development which adds to an existing catalogue of challenges including the decline of the traditional generics markets, regulatory hurdles in advanced country markets and failures in managing new drug development. Using case studies of three Indian firms we show that dynamic managerial capability is a key driver of heterogeneity in learning processes involved in acquisition of technological capabilities for biosimilars and market access strategies. It further highlights the important role of pre-existing capabilities in enabling and constraining the development of new biosimilar capabilities.     

Financial crises,debt overhang,and firm growth in transition economies

ABSTRACT

We examine the effects of the global financial crisis of 2008 and the European debt crisis of 2011 on the relationship between capital structure, investments, and performance for Eastern European companies. While the existing literature documents how firms’ investments are sensitive to the availability of internal funds and to debt holdings, we further investigate whether this investment sensitivity also translates in different levels of performance, and document that capital structure indeed has both a direct and an indirect effect, mediated by the capital expenditure channel. We show that firms with higher financial flexibility experience higher investments and returns on capital. Over-levered firms instead suffer from a debt overhang condition, forcing them to curb investments, and consequently experiencing lower performance. Overall, we provide evidence on the importance of capital structure and financial flexibility on investments and performance, showing the real consequences of the debt overhang condition on firm value creation. Firms should therefore aim at maintaining adequate financial flexibility in order to be able to pursue future profitable investment opportunities, and avoid the under-investment problem arising from a debt overhang situation.     

How chaebol restructuring after the 1997 crisis has affected corporate decision and performance in Korea: debt financing,ownership structure,and investment

ABSTRACT

Korean chaebol firms, characterized by excessive debt financing and overinvestment, experienced restructuring after the 1997 crisis. By reducing debt financing and thus overinvestment, they tried to reorganize financing structure and ownership structure. Chaebols’ debt reduction turns out to have improved performance. However, polarization between chaebol and non-chaebol firms has become more significant. Even after the crisis, firms that give higher cash flows to a controlling shareholder take more capital investment, indicating that agency problems still exist within chaebols. Chaebol-affiliated firms continue to be more active in R&D than non-chaebol firms. However, the pattern is limited to the group of top 10 chaebols after the crisis.

Abbreviations: KFTC: Korea Fair Trade Commission     

The Role of Multinational Corporations and National States in the Globalization of Innovatory Capacity: The European Perspective

The recent ability of multinational corporations (MNCs) to develop integrated technological networks, increasingly motivated within Europe by the further progress of economic integration, is argued to affect and be affected by national technological competitiveness. This paper examines the precise geographical dispersion of technological activity in Europe by the largest MNCs, and the potential impact of those MNCs on the level and structure of the technological capacity of European home and host countries, using data on patents granted to the world largest firms in the US. Since the late 1980s, the majority of the technological activity conducted in foreign-owned research facilities located in Europe, has taken place in affiliates of European-owned companies. This paper examines whether the much higher degree of internationalization of corporate technology in European MNCs than in their US or Japanese counterparts is attributable to cross-border activity within Europe, or extends to European-owned research facilities in the US and Japan. While intra-European activity matters more for Dutch, Belgian and Swedish MNCs (and in the electrical equipment and computing industries), whose strategies are substantially based on corporate European integration, investments in the US are of greater significance for French and Swiss companies, and of the greatest importance for German and British firms (and in the chemical and pharmaceutical industries), representing a more widely ‘globalized’ technological strategy.     

Founders’ human capital and external knowledge sourcing: Exploring the absorptive capacity of start-up firms

ABSTRACT

This study highlights the importance of founders’ human capital on firms’ absorptive capacity for explaining the external knowledge sourcing (licensing-in and joint R&D) of start-up firms, using panel data from original questionnaire surveys conducted in Japan. The results of a probit model with an endogenous regressor show that firms managed by founders with a high level of specific human capital, measured as prior innovation experience and industry-specific work experience, tend to engage in external knowledge sourcing because of their superior absorptive capacity. The findings indicate that this type of human capital also promotes research and development (R&D) investment. Contrariwise, this study finds that firms managed by founders with a high level of general human capital, measured as educational attainment, tend to invest more in R&D, which enhances their absorptive capacity and thereby promotes external knowledge sourcing. Finally, the implications of these findings are discussed from the perspective of public policy.     

A fuzzy-based roadmapping model for enhancing high-tech small firms’ technological entrepreneurship capabilities: cases of Iran

ABSTRACT

Technology-based firms need to survive via technological changes. Technological entrepreneurship is concentrated on identifying and exploiting the tech-opportunities for creating product innovation. This paper introduces a fuzzy-based tool to promote innovation throughout firms in order to enhance technological entrepreneurship capabilities (TEC). The effort involves identifying components of TEC to develop the inference system, specifying the fuzzy relationship among these components, assessing the TEC in firms, and designing a TEC roadmap after a fuzzy-based gap analysis. Designed roadmaps introduce technological change priorities as a growth path to firms to move up along the ladder of competitiveness. Based on the results, a method for categorizing firms into four distinct levels that involve passive, reactive, proactive and innovative is introduced. Hence, firms have an action plan to enhance TEC from passive to innovative level in a time-based transition pathway.     

Discontinuous innovation capability accumulation in latecomer natural resource-processing firms

Most of the studies that describe the building of innovation capability in emerging and developing economies have focused on the ways in which latecomer firms develop continuously towards advanced capability levels along existing technological trajectories, particularly for the assembled products industries, especially in Asia. A slightly different approach is adopted herein by focusing on pathways of discontinuous capability building of firms in natural resource-processing industries. By drawing on evidence from a variety of case studies taken from 13 forestry, pulp, and paper firms in Brazil in the period 1950-2007, it was found that: (1) in contrast with the majority of case studies reported in the literature, the pathways followed by firms in their accumulation of innovation capability involved a qualitative departure from the established technological trajectory at an early stage in the development of their capability; (2) the pathways of firms along the new technological trajectories were nevertheless characterised by a high degree of variability (from intermediate to world leading innovators) in terms of the levels and speeds of the accumulation of innovation capability; (3) firms that have attained progressively higher levels of innovative performance have more rapidly developed a combination of internal and external research-based arrangements in order to undertake increasingly complex, but firm-centred innovation efforts. This paper sheds some light on some of the discussions that relate to the role of natural resources in the patterns of industrial progress and growth in those countries endowed with particular natural resource-based industries. It also provides a methodological contribution to the study of the long-term innovation strategies that make use of the dynamics of capability building, especially within natural resource-processing industries.     

Unexpected Share Repurchase Announcements

Abstract

Open-market stock repurchase announcements are generally perceived by the stock market as a signal of firm undervaluation. Our study shows that repurchase announcements that were preceded by SEOs of other firms in the same industry within the prior six months (namely SEO-RPs) are more likely the result of lacking investment opportunities than signaling undervaluation, especially in concentrated industries. Specifically, we find investors response negatively to SEO-RP announcements while react positively to regular repurchase announcements. The higher the intensity of SEO activities in the industry, the more negative market reaction to SEO-RP announcements. We argue that the market doesn’t expect a repurchase announcement when other rival firms are raising more capital via SEOs. These SEO-RPs represent a negative surprise to the market and lead to a downward adjustment in value of the repurchasing firms in the announcement window. In the three-year post-announcement periods, the SEO-RP firms underperform regular repurchasing firms in both stock return and operating performance. Moreover, while regular repurchasing firms gradually increase their capital expenditures, SEO-RP firms significantly reduce their capital expenditures. These findings support our arguments that repurchase announcements that immediately follow SEOs of rival firms (SEO-RPs) more likely indicate the announcing firms entering a slower growth rate with fewer investment opportunities than signal the undervaluation problem. The underperformance in stock return and operation combined with a significant reduction in capital expenditures in the post-announcement periods are consistent with this logic and also explain why the market reacts negatively to SEO-RP announcements.     

Measuring ‘indirect’ investments in ICT in OECD countries

ABSTRACT

ICT components, such as microprocessors, may be embodied in other capital goods not recorded as ICT in National Accounts. We name ‘indirect ICT investment’ the value of embodied ICT components in non-ICT investment. The paper provides estimates of ‘indirect ICT investment’ based on detailed and unpublished Supply-Use tables (SUT) in 12 OECD countries: Australia, Belgium, Canada, Chile, Czech Republic, Denmark, France, Germany, Japan, Israel, Mexico, New Zealand, the United Kingdom, and the United States.

Our main finding is that ICT investment appears significantly higher when considering its indirect component, the average increase being about 35%. The inclusion of indirect ICT investment, excluding software (for which firms’ expenditures are difficult to measure), changes significantly the relative position of countries with respect to the ICT intensity of their investments. The inclusion of software further increases indirect ICT investment but the increase is smaller (in percentage) than without this inclusion. A final result, but concerning only three countries, it that the diagnosis of a stabilisation, or even a decrease, of ICT investment in percentage of GDP or of total investment, observed from the beginning of the century, is not modified if we take into account the indirect ICT investment.     

Low-cost innovation and technology-driven innovation in China’s machinery industry

ABSTRACT

The political concept of indigenous innovation in China sets out a guiding principle for the country’s major transformation towards becoming an innovation nation. However, firms’ innovation strategies and capabilities in middle-income countries are usually heterogeneous, making a uniform response to this concept at the company level highly unlikely. The paper’s empirical contribution is based on analysing survey data on technologically advanced machinery firms in China. It uses a multinomial model approach to establish which drivers of innovation go hand-in-hand with the different innovation strategies. This paper identifies different innovation strategies and forms of innovation that co-emerge as part of this transformation, leading to four firm groups: low-cost producers, technology-oriented producers, user-oriented innovators and technology-oriented innovators. It thus contributes to a more differentiated view of the effects of China’s innovation-focused transformation. We find that R&D investments, governmental R&D support and scientific collaborations are key factors to distinguish between the above-mentioned groups.     

Capabilities, Structures and Strategies Re-Examined: Incumbent Firms and the Emergence of Complex Product Systems (CoPS) in Mature Industries

This paper re-examines theories about firm capabilities, industrial co-ordination and competitive strategies in the context of Complex Product Systems (CoPS). In particular, it looks at the applicability of concepts of technological and organisational capabilities, transaction and governance cost analysis and industry lifecycle models to the performance of mature industries under conditions of technological change. It does so in the light of empirical evidence from one sector of a mature but fast-changing industry in which CoPS are currently emerging: offset lithographic print and publishing technologies—the capital goods and systems used to produce printed mass media, particularly newspapers. In this sector of the graphic arts industries, three major incumbent producer firms which were previously similar had each begun to pursue different capabilities, structures and strategies, with apparent success. The complexity of CoPS and of the organisational arrangements for their design, development and commissioning are capable of supporting a wide variety of firm capabilities, structures and strategies.     

风险投资介入与创业企业国际化——基于我国高科技上市公司的实证研究

风险投资对创业企业的成长具有举足轻重的作用;那么,风险投资的介入对其国际化会带来怎样的影响呢?文章基于资源基础观、代理理论和信号传递理论,分析了风险投资影响创业企业国际化的内在作用机理以及风险投资机构特质与创业企业国际化之间的关系,并以我国300家高科技上市公司的非平衡面板数据为样本进行了实证检验.结论表明:(1)风险投资介入不仅能够开拓创业企业国际化的广度,而且也能加强创业企业国际化的深度;(2)不同特质的风险投资机构对创业企业国际化的影响存在差异,有外资背景的、行业专长高的或采取联合投资策略的风险投资机构有利于创业企业在海外市场上的拓展和渗透.文章不仅拓展了现有的企业国际化理论,而且对创业企业的国际化实践也具有借鉴意义.     

Capital endowment, credit constraint and FDI: Analysis based on heterogeneous firms

To examine the impact of capital endowment and credit constraint on firms’ FDI decisions, we build a model of investment portfolio based on heterogeneous firms setup. We find that financial factors matter for firms’ internationalization. More capital endowment or less credit constraint lowers cutoff productivity for firms to do FDI.     

Effect of new product alliances on building cross-functional capability: cross-fertilisation or cannibalisation?

ABSTRACT

The extant literature has focused mainly on how establishing alliances helps firms develop their capabilities within focal functional areas, while paying limited attention to the cross-functional effects of alliances. Drawing on the knowledge-spillover literature and resource-dependence theory, this study investigates the effects of new product development (NPD) alliances on building cross-functional capabilities, testing the influences of important organisational, strategic, and environmental contingencies. Based on survey data collected from 212 Chinese firms, the findings reveal that, for resource-abundant firms, R&D-focused NPD alliances have cross-functional fertilisation effects on marketing capabilities; whereas for resource-constrained or highly innovative firms such alliances cannibalise marketing capabilities; in dynamic markets, marketing-focused NPD alliances cross-fertilise technological capabilities, but such an effect is weaker in firms adopting a highly incremental innovation orientation. Overall, this study sheds new light on how NPD alliances affect cross-functional capabilities under important contingencies.     

Innovation strategy of local pharmaceutical firms in Korea: a multivariate analysis

This article examines 37 local pharamaceutical firms in Korea to identify different patterns of innovation behaviour associated with four types of firms, which are categorized by two variables: the scale of operation and technological capability. Both bivariate and multivariate analyses support the hypotheses that these four types of firms exhibit different innovation strategies and in turn the level of performance they achieved. Specifically, large firms with high technological capability diversify their efforts, investing in their own R & D and tapping foreign capabilities, and as a result exhibit the highest degree of innovativeness, while large firms with low technological capability resort primarily to the transfer of foreign technology for short-term profitability. In contrast, small firms with high technological capability rely mainly on their own R & D efforts with the assistance from local R & D institutes and enjoy the highest growth rate, whereas small firms with low technological capability imitate technologically low-grade products by hiring experienced technical personnel from other firms. There are also fragmented indications that many local firms have long evolved from small firms with low capability to large firms with high capability. Finally, managerial and theoretical implications for the innovation strategies in LDCs/NICsE are discussed.