Joint ventures in patent contests with spillovers and the role of strategic budgeting

We consider an R&D contest between n firms in the presence of external spillovers. Our analysis focuses on the effects of these spillovers on joint venture activities between firms. In particular, we are interested in how different budget responsibilities within the research joint venture (RJV) affect profits of firms taking part in the joint venture and profits of their non-cooperating rival firms. Three arrangements for RJVs are analyzed: First, cooperation, in which the firms participating in the joint venture completely share the research they create in the innovation process and each firm has a sovereign budget responsibility. Second, a collusive arrangement in which the participating firms not only share their research but have joint budget responsibilities in the sense that they make all strategic choices cooperatively and maximize joint profits. Third, a hierarchical form, in which the cooperating firms establish joint headquarters which have strategic budget responsibility in the sense that it can strategically subsidize R&D efforts of its member firms so as to maximize overall RJV profits. We show that the first two arrangements can be mimiced in the hierarchical structure and that a hierarchical structure is optimal if it completely subsidizes its members’ R&D activities. In this case all rival firms are driven out of the contest.     

The impact of R&D on value added for domestic and foreign firms in a newly industrialized economy

This study compares the impact of R&D on value added between domestic and foreign firms in Singapore. The analysis is based on a comprehensive panel database from 1993 to 1999 provided by the Singapore Government. Our results found that R&D investments of foreign firms generated higher value added than those of domestic firms, and that the difference in value added contributed by R&D was moderated by the type of R&D and the technological level of industry. The study supports the argument that the ownership advantages possessed by foreign firms, relative to domestic firms, have positive effects on R&D performance.     

Corporate Social Responsibility and Its Impact on Firms’ Investment Policy, Organizational Structure, and Performance

This study examines the determinants of corporate social responsibility (CSR) and its implications on firms’ investment policy, organizational strategy, and performance. First, we find that firms with better performance, higher R&D intensity, better financial health, and firms in new economy industries are more likely to engage in CSR activities, while riskier firms are less likely to do so. We also find U-shaped relation between firm size and CSR, indicating that either very small or very large firms exhibit high levels of CSR strengths and concerns. Next, we find that firms’ CSR strengths relate favorably with their investments, organizational strategy, and performance, whereas CSR concerns and firm attributes are by and large negatively related. Using a 2SLS procedure, we verify that the CSR–performance relation is robust to corrections for endogeneity through reverse causation and/or biases introduced by time varying omitted variables. Finally, we find that the CSR–firm attributes relation is strengthened when the CEO’s incentives are below the sample median, suggesting that CSR participation is especially important when monetary incentives are lower than benchmark levels.     

When do firms benefit from university–industry R&D collaborations? The implications of firm R&D focus on scientific research and technological recombination

Firms' access to academic discoveries through R&D collaborations has been shown to enhance their patent performance. However, increasing both internal and external R&D activities can lead to high knowledge redundancy and coordination costs. This paper examines what kind of R&D focus inside the firm will improve or reduce the benefits of R&D collaborations with universities. Our results show that technological recombination focus strengthens the relationship between university collaborations and patent performance, whereas scientific research focus weakens the relationship. These results also differ between young and old firms, implying that firms may shift their R&D focus according to their collaborative objectives.     

International mergers: Incentives and welfare

Information asymmetry creates incentives for firms from different countries to merge. To demonstrate this point, we develop a model of international oligopolistic competition under demand uncertainty and asymmetric information. We show that when domestic firms but not foreign firms are completely informed of local market demands, information sharing enhances the profitability of a merger between a domestic firm and a foreign firm. We also examine how such a merger affects the non-merging firms' profits, consumer surplus and social welfare.     

The Two Faces of R&D: Does Firm Absorptive Capacity Matter?

This paper examines the dual effect of firm R&D efforts on productivity growth for Swedish manufacturing firms. The R&D efforts do not only stimulate innovation but also enhance firms?? ability to identify, assimilate and exploit new knowledge from the environment (Cohen and Levinthal. Economics Journal 99:569?C596, 1989). In this paper, we assume that the principal channel of transmission of new knowledge is through I/O linkages. Our econometric evidence suggests that in addition to the firm??s own R&D activities, R&D spillovers embodied in traded goods within the industry, others imported from abroad, and technology spillovers transferred from the technological frontier within an industry are important determinants of firms?? productivity growth. Results suggest that domestic R&D spillovers following the I/O links between industries are of minor importance in this respect. We also analyze whether firms?? absorptive capacity matters for productivity growth. Analyzing absorptive capacity is particularly important for assessing the effective contribution of spillovers from other firms. The effect of a firm??s absorptive capacity is found to interact positively with imported R&D spillovers, whereas domestic rents spillovers seem to play a minor role for productivity growth.     

Impact of Horizontal Mergers on Research & Development and Patenting: Evidence from Merger Challenges in the U.S.

This paper contributes further empirical evidence on the effects of mergers on innovation using company level data. Evidence on this issue has implications for the relationship between innovation and market concentration. Our departure from previous work is that we focus on a sample of horizontal mergers whose market concentration impacts were flagged by U.S. antitrust authorities as potentially posing a problem for antitrust law compliance. We employ propensity score matching and difference-in-differences estimation to compare the innovation activities of challenged and non-challenged merger firms to a control group of non-merged firms. We use R&D, patent grants, and citation-weighted patent grants to measure the innovation activities of firms before and after a merger. Our results indicate that the post-merger innovation outcomes of firms whose mergers were challenged are lower than they would have been had the firms not merged. But for non-challenged mergers, or mergers that do not raise concerns about market concentration, post-merger innovation outcomes are not significantly different from what they would have been without a merger.     

Uncertainty,organizational form,and x-efficiency

When the firm is uncertain about the efficiency units of labor that it employs, some organizational forms—franchise, owner-operated, and multiplant firms— may be more profitable than others. As a result, particular organizational forms may dominate an industry with uncertain inputs. Conversely, various organizational forms may be selected by a company selecting producing units that will maximize the decision maker's expected utility of profits. This paper offers an alternative view of firm attributes associated with x-efficiency.     

Technological capabilities and the decision to outsource/outsource offshore R&D services

We analyze firm and environmental factors influencing the decision to outsource and outsource offshore R&D services. To do so, we have adopted a co-evolutionary approach adapted to firm internationalization, according to which these decisions are conditioned by the institutional environment (the IPR system), managerial intentionality (firms’ international strategy) and organizational path dependence and learning (firms’ technological and governance capabilities). Specifically, we argue that: (1) firms with more technological capabilities will tend to both outsource and outsource offshore R&D services, (2) the positive effect of technological capabilities would be leveraged when the institutional context of the firms’ country of origin has allowed them to transform their technological expertise into governance capabilities, and (3) that those firms with a higher local responsiveness attitude will be more likely to outsource offshore R&D services. We have found support for our hypotheses using survey data from a sample of 182 technology intensive firms from the European Union and the US.     

Horizontal Agreements and R&D Complementarities: Merger versus RJV

We study the decision of two firms within an oligopoly concerning whether to enter into a horizontal agreement to exploit complementarities between their R&D activities and if so, whether to merge or form a research joint venture (RJV). In contrast to horizontal merger and motivated by real-world evidence, we incorporate a probability that an RJV contract will fail to enforce R&D sharing. We find that a horizontal agreement always arises in equilibrium, which is consistent with empirical findings that R&D complementarities between firms positively influence the formation of horizontal agreements. The insiders’ merger/RJV choice involves a trade-off: While merger offers certainty that R&D complementarities will be exploited, it leads to a profit-reducing reaction by outsiders on the product market, where competition is Cournot. Greater contract enforceability (quality) and R&D investment costs both favour RJV. Interestingly, the insiders may choose to merge even when RJV contracts are always enforceable, and they may opt to form an RJV even when the likelihood of enforceability is negligible. We also explore the welfare implications of the firms’ merger/RJV choice.     

Alliance Strategies of Small Firms

The paper concludes that small firms follow one of two alliance strategies. When the firms are small relative to their rivals and to their market, they tend to use alliances to gain economies of scale and scope; when they are large in relative terms, they avoid alliances. This behavior is consistent with alliance usage by large firms. The paper also analyzes the sources of profit for a small firm that uses a "constellation" of allies to compete in a scale-intensive industry. Its profits depend on a combination of the group-based advantages generated by the constellation, and the share of these profits that the firm can appropriate from the group. Small firms face particular hazards in this regard when their bargaining power within their constellation is weak. The paper illustrates these arguments with data froma small survey, with case studies from the computer industry, and with a simple mathematical model.     

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.     

R&D intensity and acquisition and divestiture of corporate assets: Evidence from Japan

This article provides evidence from Japanese acquisitions and divestitures after the late 1990s on the effect of corporate R&D to stimulate inter-firm asset trade. Consistent with the notion that R&D increases a firm's opportunities for and ability to profit from synergy with external assets, regressions performed on a sample of publicly traded manufacturers reveal that R&D intensity and the breadth of patented technologies positively and significantly correlate with a firm's probabilities to acquire and sell off assets. The link of R&D and divestiture is qualitatively homogeneous across industries and time but the positive and significant R&D-acquisition link concentrates in industries where the interdependence of firms’ innovative activities is relatively high and time when firms likely had large pent-up demand for asset trade.     

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.     

High-growth firms and innovation: an empirical analysis for Spanish firms

This paper analyses the effect of R&D investment on firm growth. We use an extensive sample of Spanish manufacturing and service firms. The database comprises diverse waves of Spanish Community Innovation Survey and covers the period 2004–2008. First, a probit model corrected for sample selection analyses the role of innovation on the probability of being a high-growth firm (HGF). Second, a quantile regression technique is applied to explore the determinants of firm growth. Our database shows that a small number of firms experience fast growth rates in terms of sales or employees. Our results reveal that R&D investments positively affect the probability of becoming a HGF. However, differences appear between manufacturing and service firms. Finally, when we study the impact of R&D investment on firm growth, quantile estimations show that internal R&D presents a significant positive impact for the upper quantiles, while external R&D shows a significant positive impact up to the median.     

The roles of R&;D in new firm growth

Innovative start-ups are an important driver of economic growth. This article presents empirical evidence on the effects of research and development (R&D) on new product development, interfirm alliances and employment growth during the early life course of firms. We use a dataset that contains a sample of new firms that is representative of the whole population of start-ups. This dataset covers the first 6 years of the life course of firms. It is revealed that R&D plays several roles during the early life course of high-tech as well as high-growth firms. The effect of initial R&D on high-tech firm growth is through increasing levels of interfirm alliances in the first post-entry years. R&D efforts enable the exploitation of external knowledge. Initial R&D also stimulates new product development later on in the life course of high-tech firms, but this does not seem to affect firm growth. R&D does not affect the growth rate of new low-tech firms, which seem to be driven mainly by the growth ambitions of the founding entrepreneur. The results show that R&D matters for a limited but important set of new high-tech and high-growth firms, which are key in innovation and entrepreneurship policies.

Export Market Participation,Investments in R&D and Worker Training,and the Evolution of Firm Productivity

This paper uses micro panel data for firms in the Taiwanese electronics industry in 1986, 1991 and 1996 to investigate a firm's decision to invest in two sources of knowledge – participation in the export market and investments in R&D and/or worker training – and assess their effect on the firm's future productivity. The firm's decisions to export and invest in R&D and/or worker training are modelled with a bivariate probit model that recognises the interdependence of the decisions. The effect of these investments on the firm's future productivity trajectory is then modelled while controlling for the selection bias introduced by endo‐genous firm exit. The findings indicate a significant interaction effect between exporting and R&D investments and future productivity, after controlling for size, age and current productivity. Firms that undertake both investment activities have significantly higher future productivity than firms that do one or neither. In addition, these firms are more likely to continue investing in these activities leading to further productivity gains. These findings are consistent with the hypothesis that export experience is an important source of productivity growth for Taiwanese firms and that firm investments in R&D and worker training facilitate their ability to benefit from their exposure to the export market.     

R&;D,Size and Firm Growth in Taiwan‘s Electronics Industry

This paper documents the relationship between R&D, firm size, and growth rate for a panel data of Taiwanese electronics firms. Using GMM method to control for endogeneity of R&D, the main finding is that an increase in R&D induces a higher growth rate and this impact is particularly higher for small firms. Testing Gibrat’s law shows that small firms indeed have a higher growth rate than their larger counterparts, while size is independent with firm growth in the group of large-sized firms, supporting the weak form of Gibrat’s law.     

Technical performance and firm size: Analysis of patents and publications of U.S. firms

This study focuses on the scientific output of firms of different sizes in different industries in the U.S. Both patents, and papers and publications are used as measures of technical output. Data from two samples of firms, one consisting of 225 large firms (annual sales at least $250 million and minimum annual R&D budget of $1 million) and the other consisting of 248 small and medium sized firms (annual sales between $10 to $200 million and annual R&D budget at least $10 thousand) have been presented here. The study shows that determinants of R&D expenditure are different in firms of different sizes. For the large firms, R&D expenditure depends on net income as well as its size, measured in terms of annual sales. For small size firms, R&D expenditure is closely related with sales, rather than the net income. For large firms, R&D expenditure is related to both sales and income, the latter being more important than the former. The two output measures, patents and papers are correlated, but the correlation is not a very strong one for small firms. Patent and papers are correlated significantly with both R&D expenditure as well as annual sales. The firm's growth is not linked with patents. On the contrary, there is a negative relationship between patent and R&D growth and patent and income growth in the case of small firms. Papers are not linked with growth variables for small firms. Finally, this study confirms the hypothesis that small firms are more productive in innovation than the large firms. Small firms are more efficient than their larger competitors in terms of patents and papers per million dollars of R&D expenditure.     

R&D policies, trade and process innovation

We set up a simple trade model with two countries hosting one firm each. The firms invest in cost-reducing R&D, and each government may grant R&D subsidies to the domestic firm. We show that it is optimal for a government to provide higher R&D subsidies the lower the level of trade costs, even if the firms are independent monopolies. If firms produce imperfect substitutes, policy competition may become so fierce that only one of the firms survives. International policy harmonization eliminates policy competition and ensures a symmetric outcome. However, it is shown that harmonization is not necessarily welfare maximizing. The optimal coordinated policies may imply an asymmetric outcome with R&D subsidies to only one of the firms.