Asymmetric firms,technology sharing and R&D investment

We use a combination of theory and experiment to study the incentives for firms to share knowledge when they engage in research and development (R&D) in an uncertain environment. We consider both symmetric and asymmetric starting points with regards to the amount of initial knowledge firms have before conducting R&D and look at how differences in starting positions affect the willingness of firms to share knowledge. We investigate when and if firms find R&D cooperation beneficial and how investment in R&D is affected by the outcome of the sharing decisions. The experimental evidence shows that overall subjects tend to behave consistently with theoretical predictions for the sharing of knowledge, although leaders who are not compensated by a side payment from laggards are more willing to share than predicted by the theory, and leaders who are compensated are less willing. The data on investment suggests less investment with sharing than without, consistent with theory. Compared to exact numerical predictions, there is overinvestment or underinvestment except for symmetric firms under no sharing. All cases of overinvestment and underinvestment, regardless of sharing or not and regardless of starting positions, are well explained by smoothed-out best (quantal) responses.     

R&D,export and investment decision: evidence from European firms

This article provides an empirical investigation of the mechanism through which R&D influences export and tangible investment decisions. The analysis is based on a large representative and cross-country comparative sample of manufacturing firms across seven European countries. The novelty of this work lies in the three aspects. First, we expand the results on the R&D–export and R&D–investment relationships to a wide sample of cross-European firms. This differentiates from previous works based on single-country samples. Second, to the best of our knowledge, this study is the first in years which assess empirically the relationship between R&D and tangible investment at the micro level. Third, we control for endogeneity of R&D and simultaneity in firms’ decision whether to export and carry out tangible investment. The results of the analysis suggest that R&D positively affects export propensity and tangible investment. The results also reveal that neglecting endogeneity and simultaneity issues leads to underestimate the effect of R&D to both export and investment propensities.     

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     

Foreign and domestic R&D investment

A considerable share of R&D investment is due to multinational firms that simultaneously operate R&D bases at home and abroad. We develop a simple model of foreign and domestic R&D investment and test the model's predictions on a sample of 146 Japanese multinational firms’ R&D investments in Japan and the United States in 1996. The empirical results confirm that the foreign to domestic R&D ratio depends on relative technological opportunities and relative demand conditions, with foreign research expenditures responding to technological opportunity and foreign development expenditures responding to demand.     

Decision-making in investment in overseas R&D

According to the literature, multinational firms are motivated to locate R&D activity overseas for mainly three reasons, namely: to adapt to local markets; access lower cost R&D capacity; or access unique research capability. Ireland at the beginning of the century appeared, from this finding, badly placed to attract R&D in foreign direct investment (FDI), as it had by global comparisons neither a large domestic market, a low cost economy nor a strong R&D profile. In spite of this, Ireland has succeeded in attracting significant investment in R&D projects. The cases of investment in Ireland analysed here reveal that the nature of the decision-making process itself has been a decisive factor in the outcome, and that less quantifiable factors such as cultural closeness, history, and personal relationships have played a stronger role in the outcome than would be expected from the literature.     

Market structure and R&D investment spillovers

This paper examines research and development (R&D) investment spillovers across different market structures. In particular, we extend the recent work in Matsumura et al. (2013) to incorporate R&D investment spillovers. When the market is a duopoly, noncooperative (cooperative) R&D investment is preferred for small (large) spillovers of less (more) than half. We show that as a market structure becomes more competitive, noncooperative R&D investment is more likely to be preferred. Moreover, noncooperative R&D is not always decreasing with the intensity of competition, even though it is ultimately zero with perfect competition. Our theoretical results fit well with existing empirical findings.     

Pollution abatement with disruptive R&D investment

This paper examines a model of investment in abatement where polluting firms produce output while investing in R&D. This investment, however, increases production costs, thus disrupting first-period output. We identify three equilibrium profiles where firms choose to either: (1) invest in R&D alone (thus rationalizing a common modeling assumption in the literature); (2) produce output alone; or (3) engage in both activities. We evaluate how the emergence of each result is affected by the market structure in which firms compete and by the severity of spillover effects. We then measure welfare levels in each equilibrium profile. Overall, we show that firms endogenously choose to focus on R&D only when the market is concentrated and spillover effects are small. In other type of industries, our findings indicate that firms may focus on output production or engage in both activities under relatively large conditions.     

Determinants of R&D in knowledge-intensive business services firms

Research and development (R&D) is a key factor enabling firms to gather information, create knowledge and innovate. Although often seen as the preserve of goods-producing sectors, knowledge-intensive business services (KIBS) in particular also engage in R&D. In this paper, we are interested in understanding the determinants of R&D in KIBS. We address this question by exploring factors connected to R&D in KIBS, with attention to whether it is connected with internal capabilities or to establishments' openness. We show that KIBS' R&D is associated with internal capabilities, and that recourse to external R&D is part of a strategy of openness that complements internal capacity. We also suggest that KIBS's own view of R&D is aligned with R&D in the goods-producing sector, leading establishments in non-technological KIBS sectors to under-report R&D.     

R&D and foreign direct investment with asymmetric spillovers

This paper analyzes how firms’ R&D investment decisions are affected by asymmetries in knowledge transmission, considering different sources of asymmetry such as unequal know-how management capabilities and spillovers localization within an international oligopoly. We show that a better ability to manage knowledge flows incentivizes the firm to invest more in R&D. By introducing geographically bounded spillovers, we also find that one-way foreign direct investment (FDI) stimulates the multinational enterprise to raise its own R&D and that an FDI equilibrium is more likely to occur. Finally, spillovers localization leading to two-way FDI is welfare improving when compared with non-localized spillovers.     

R&D and productivity in Danish firms: some empirical evidence

The aim of the paper is to examine the relationship between R&D capital and productivity using microdata for Danish manufacturing firms. The influence of factors such as ownership, innovative characteristics and source of funding accounted for. The return to accumulated R&D capital is estimated to be in the neighbourhood of 9–12%, whereas the short-run effect of R&D is insignificant. Furthermore, the direct influence from foreign ownership, source of funding accounted for, innovative characteristics and ownership dispersion on productivity are analysed. However, none of the factors seem to have an impact on firm productivity. The same is the case for the indirect influence coming from interaction with accumulated R&D capital.     

Value maximizing hurdle rates for R&D investment

We show that the value maximizing hurdle rate for research and development (R&D) investments among private firms operating in a market setting is less than for conventional investments despite the fact that R&D has development risk. Because development risk arises only during R&D, entrepreneurs control this risk by deferring or pursuing R&D depending upon profitability. This risk management moderates downside loss and encourages upside gain which increases the value attraction of R&D and decreases the value maximizing hurdle rate below that of conventional investment.     

Productivity and R&D sources: evidence for Catalan firms

This paper draws on a sample of innovative Catalan firms to identify how two main sources of innovation – internal R&D and external R&D acquisition – affect productivity in the manufacturing and service industries. The sample comprises 1612 innovative firms from the fourth European Community Innovation Survey (CIS-4) during the period 2002–2004. We compare empirical results when applying the usual OLS and quantile regression techniques controlling with a non-parametric sample selection. Our results indicate the different patterns that are attributable to the two sources of innovation as we move up from lower to higher conditional quantiles. First, the marginal effect of internal R&D on productivity decreased as we moved up to higher productivity levels. Second, the marginal effect of external R&D acquisition increased as we moved up to higher productivity levels. Finally, empirical results show significant complementarities between internal and external R&D, which are higher for knowledge-intensive service sectors.     

Innovation in R&D service firms: evidence from the UK

Research and Development (R&D) service firms make significant contributions to innovation in other businesses. The extant literature considers these firms a homogenous sub-group of Knowledge Intensive Business Service firms (KIBS). The objective of this study is to investigate how R&D service firms innovate and the variety of innovation practices within these firms. Employing data from semi-structured interviews with senior managers from 32 UK-based R&D service firms, we suggest that there are two different modes of innovation: in the first mode, R&D service firms innovate similarly to KIBS whose innovation is ad-hoc in nature and driven by customers’ requests; another group of R&D service firms innovate like New Technology-based Firms (NTBFs) relying more on structured in-house R&D activities.     

R&D investment and internal finance: the cash flow effect

This paper investigates the cash flow effect on R&D investments for firms in Denmark. Evidence is found that internal funds are important in explaining R&D investments, indicating that R&D investment decisions are affected by credit market imperfections. Cash flow sensitivities are larger both for smaller firms and for firms with low debt relative to assets. Furthermore, this effect is also present after controlling for cash flow’s potential role as a predictor of future profitability.     

International talent inflow and R&D investment: Firm-level evidence from China

Using firm-level R&D data with regional international talent data, we find that international talent increases the R&D investment of Chinese manufacturing firms, a result that is further confirmed with patent data and under a number of robustness checks. These findings stem from two mechanisms: international talent boosts human capital accumulation and provides a diversified labor force. Further, the R&D promoting effect is stronger if firms are located in eastern China rather than in other regions, of small and medium-sized rather than large-sized, of domestic ownership rather than foreign ownership. The policy implication is, the introduction of international talent can be a new way to promoting R&D investment, especially for skilled-labor constrained countries.     

A dynamic general equilibrium model for public R&D investment in Taiwan

In terms of economic development policies, public research and development (R&D) investment may be one of the most critical and useful tools in Taiwan, having frequently played a role in leading related overall investment in Taiwan. Although the impact channels of R&D investment are varied and complex, its benefits in terms of the development of human capital, industrial productivity, and basic research are clear. With the rapid growth of the private sector in the Taiwan economy, it is, however, debatable whether the government should continue to use the public financial budget to invest in R&D. By using a computable general equilibrium (CGE) model to simulate the impact of public R&D investment on the economy in Taiwan, the empirical evidence of the present paper is that public R&D investment gives rise to different short-term and medium-term impacts on real GDP that are mostly felt in the third or fourth years of their implementation among different industries. These impacts then gradually converge back to equilibrium in the long run. Public R&D investment boosts the technology of high-tech industries and increases exports, but it also crowds out the output of primary industries. Although the public R&D investment has a positive effect on the real wage, its effect on inflation should not be overlooked. Because of the pros and cons surrounding the impact of public R&D investment on industries and the economy, the study provided by the present paper can serve as valuable reference not only to decision-makers in government agencies but also to academic researchers.     

The cyclical behavior of R&D investment during the Great Recession

This paper investigates the cyclicality of research and development (R&D) activities during the Great Recession period by incorporating the role of cre     

Corporate governance structure,managerial discretion,and the R&D investment in China

This article studies the influence of corporate governance factors on firm R&D investment in a transitional economy like China. By using the data from the listed companies in China, this article statistically tests the hypotheses on the relations between corporate R&D intensity and managerial discretion of CEOs, independent outside directors, degree of share concentration, share held by the state, and share held by a manager. According to the results, the managerial discretion of CEOs has a significant and negative correlation with the firm R&D investment. The number of the independent outside directors in the board has a positive influence on the R&D investment. And as the shares held by a manager increase, the firm R&D intensity will decrease at first, and then increase along an inverted parabolic curve. All these findings show that the improvement of corporate governance and stock incentive plan, and the cultivation of active and long-term stock investors, may finally lead to the upgrade of corporate innovation capabilities.     

High-growth versus declining firms: the differential impact of human capital and R&D

We provide evidence that both human capital and R&D increase the likelihood that a firm will be a high-growth firm in the industry. However, different from human capital, being an R&D active firm also increases the probability of substantial decline or failure, underscoring the risky nature of innovation. Quantile regression results show that, different from R&D, human capital is growth-enhancing for all firms, hence also those located in the lower quantiles of the distribution of growth rates across firms.