How does R&D internationalization in multinational firms affect their innovative performance? The moderating role of international collaboration in the energy industry

This paper examines the effects of the degree and geographic diversification of a firm’s R&D internationalization on its innovative performance. We use an unbalanced panel dataset of 401 observations from 110 multinational firms operating in the energy industry over a period of six years to support the argument that both the degree and the geographic diversification of a firm’s R&D internationalization have an inverted U-shaped relationship with a firm’s innovative performance. Our results also show that collaboration among R&D units located in different countries moderates this relationship by reducing both the positive effects and the challenges of the degree of R&D internationalization. This paper extends the emerging innovation focus in the headquarters–subsidiary literature by contributing to our understanding of the implications of the international R&D activities of firms and supports the utilization of social exchange theory in order to identify the moderating influence of the collaboration among a firm’s R&D units located in different countries.     

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.     

Do Mature Firms Gain Higher Economic Value from R&D Investment?

Despite the significance of economic value indicators in the measurement of firm value, not much attention has been dedicated to how research and development (R&D) influences firms’ economic value. This study examines the relationship between R&D investments and firms’ economic value and considers the moderating role of age in the relationship using a dataset from manufacturing and information and technology firms in China. The results show that R&D investments impact firms’ economic value positively. This suggests that firms that invest in R&D are rewarded with a monopoly, which increases their market shares, thereby increasing economic value. Again, we find that older firms increase their economic value more than younger ones when they both invest in R&D. Thus, younger firms in China suffer from the liability of newness when they invest in R&D. It is recommended that these younger firms should strive to shorten the time to reap the returns from R&D investments.

     

Effect of R&D tax credits for SMEs in Japan: a microeconometric analysis focused on liquidity constraints

This article estimates the effect of research and development (R&D) tax credits for small- and medium-sized enterprises (SMEs) by utilizing the propensity score matching method to correct any possible selection bias. This study also examines whether the impact of tax credits differs with firms’ characteristics such as their industry, size, and liquidity constraints. Empirical results show that R&D tax credits induce an increase in SMEs’ R&D expenditures. Moreover, we find that the effect of R&D tax credits on liquidity-constrained firms is much greater than on unconstrained firms.     

Beyond Trade Costs: Firms’ Endogenous Access to International Markets

In this paper, we explore another factor besides trade costs that can affect firms’ exports: strategic interaction between firms in R&D investment. Three results can be highlighted. First, the volume of trade is higher in the presence of R&D than in the absence of it, given that R&D reduces marginal costs. Second, like with reductions in trade costs, international trade grows with increases in the return on R&D, since technological progress enhances firms’ competitiveness. Third, when firms differ in commitment power in R&D, the R&D leader plays strategically in R&D in order to become more competitive and to be more active in international markets than the R&D follower.     

Cooperative and non-cooperative R&D and trade costs

We examine the effect of trade liberalization on the level and mode of R&D in an international duopoly setting. Firms have the choice to invest in R&D either independently or cooperatively. A reduction in trade cost increases R&D irrespective of the mode of R&D. However, an increase in spillovers has ambiguous effects on R&D. More precisely, we find that an increase in spillover leads to higher R&D activity under cooperation but lower R&D activity under non-cooperation. Concerning cooperation versus non-cooperation, we find that firms prefer cooperation only if trade costs are low. Consumers are better off under cooperation if spillovers are high. We find that there can be a mismatch between private and social incentives. If spillovers are low and trade costs are low then cooperation might be privately profitable but socially undesirable. On the other hand, if there are large spillovers and high trade costs then cooperation may be socially desirable but not privately profitable.     

The impact of domestic diversification and top management teams on the international diversification of Chinese firms

Despite increasing research on outward foreign direct investment (OFDI) by firms from emerging economies, our understanding of the relationship between domestic operations and international diversification of these firms is still limited. Using a unique dataset of Chinese listed firms, we examine the impact of domestic diversification on their international diversification. We find that international diversification is positively affected by firms’ domestic industrial and domestic regional diversification. We also find that top management team (TMT)’s previous international experience strengthens the impact of domestic diversification on firms’ international diversification, whereas TMT's prior political connections weakens the impact of domestic diversification on international diversification.     

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.     

Evaluation of credit guarantee policy using propensity score matching

In this article, we evaluate the effect of the credit guarantee policy by comparing a large sample of guaranteed firms and matched non-guaranteed firms from 2000 to 2003. The sample firms are compared with respect to growth rates of different performance indicators including: productivity, sales, employment, investment, R&D, wage level, and the survival of firms in the post crisis period. In order to avoid the selectivity problem, propensity score matching methodologies are adopted. Results suggest that credit guarantees influenced significantly firms’ ability to maintain their size, and increase their survival rate, but not to increase their R&D and investment and hence, their growth in productivity. Moreover, due to the adverse selection problem, firms with lower productivity were receiving guarantees.     

Firm size and innovation

In an innovation survey in the Netherlands, we find considerably more SMEs which perform small scale R&D than are found in the official R&D surveys. Nonetheless, SMEs appear on average to be somewhat less R&D intensive than large firms. Only when we restrict our observations to firms which perform some R&D, there is no systematic relationship between size and R&D. Among the barriers to innovation the following are particularly important to SMEs: information deficits with respect to instruments of innovation policy; a lack of capital; a lack of management qualifications; problems in finding adequate technical information, and problems in finding qualified employees.     

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 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.     

Pro-market reforms and the outsourcing tradeoffs: Evidence from the transition economies

What determines the firm scope is a fundamental question driving strategy and international business research. Extant literature examining a firm’s vertical scope decision has historically not accounted for the influence of institutional reforms. To fill this gap, we develop a theoretical framework based on insights from institutional economics to examine how pro-market reforms and firm-level R&D activity influence the likelihood of outsourcing production activities. Using data from the Business Environment and Enterprises Performance Surveys conducted by World Bank and European Bank for Reconstruction and Development in twenty-eight transition economies, we analyze the influence of pro-market reforms on the outsourcing decision. We do not find support for a strong direct influence of pro-market reforms on the likelihood of starting outsourcing. However, we find evidence that pro-market reforms influence the relationship between R&D activity and the likelihood of outsourcing. Interestingly, economic and legal reforms moderate the relationship between R&D activity and the likelihood to start outsourcing in different ways. While economic reforms weaken the positive relationship between R&D activity and outsourcing, legal reforms strengthen it.     

Strategic choice during economic crisis: Domestic market position,organizational capabilities and export flexibility

This study examines how sudden shrinkage of domestic demand affects firm-level export performance. Using the Asian economic crisis as a natural experiment, we show that while the industrial organization (IO) economics and resource-based view (RBV) apply well in the pre-crisis period, the real options perspective does a better job in explaining firms’ efforts to increase exports in the post-crisis period. Specifically, using a real options perspective, we show how sudden change in domestic demand provides benefits to those firms that have invested in flexible capabilities while those firms that are locked in with inflexible resources fail to change. We find that the positive relationship between a firm's domestic market position and export intensity becomes stronger in the post-crisis than the pre-crisis period. Further, we find a positive relationship between non-location-bound flexible capabilities such as R&D and export intensity and a negative relationship between location-bound inflexible capabilities such as advertising and export intensity. These relationships become more pronounced in the post-crisis period.     

Domestic vs. International Spillovers: Evidence from Swedish Firm Level Data

This paper investigates the association between total factor productivity growth and the R&D expenditures of Swedish manufacturing firms in the presence of domestic- and international R&D spillovers. The paper assumes that the principal channel of transmission of new technology is through I/O relations. Econometric evidence suggests that international as well as domestic inter-industry R&D spillovers are important determinants of firms’ productivity growth in the long run. The R&D spillovers generated within the industry and following I/O links seem to be of minor importance in explaining productivity growth. It seems likely that within-industry productivity spillovers follow other channels than I/O flows, such as horizontal spillovers through copying of new products and processes, or labour turnover. The use of a convergence parameter is one way to check for such within-industry technology flows. Our results indicate that a catch-up process exists by which the non-frontier firms in the Swedish manufacturing sector absorb knowledge spillovers from the leading firms in the industry. Finally, a firm’s own R&D efforts are found to be more or less positively correlated with the TFP growth, maybe the contribution from R&D efforts in some sense are underestimated.     

Quantile estimates of the impact of R&D intensity on firm performance

This paper investigates the relationship between initial research and development (R&D) intensity and firm growth using a unique data set for firms with R&D activities in Austria during the period 1995–2006. Results based on the least absolute deviation (LAD) estimator show that initial R&D intensity has a positive and significant impact on both employment and sales growth in the subsequent 2 years. Quantile regressions for each cross-section reveal that the impact of R&D intensity is significant from 0.3 to the highest quantile of the conditional distribution of employment growth. Furthermore, the elasticity of employment growth with respect to R&D intensity is highest for firms at or slightly below the median of the distribution of firm growth. Finally, we find that the impact of R&D decreases significantly over time.     

R&D Investments in Markets with Network Effects

We consider process R&D investments of firms in markets with network effects and incomplete product compatibility. Our results indicate that network effects increase the firms’ individual investments in R&D. The presence of network effects weakens the positive impact of R&D cooperation on firms’ R&D investments. Further, we show that R&D competition can bring socially optimal level of investment, and this is not possible in markets without network effects. Finally, our results suggest that innovation policy oriented at promoting R&D cooperation between enterprises can be counterproductive in markets with network effects and incomplete product compatibility.

     

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.     

Unpacking Open Innovation: Absorptive Capacity,Exploratory and Exploitative Openness,and the Growth of Entrepreneurial Biopharmaceutical Firms

In this article, we explore the relationship between two key aspects of open innovation in small firms—absorptive capacity (ACAP) and external relationships—and their effects on growth in the U.S. and European biopharmaceutical sectors. Results from an international sample of 349 biopharmaceutical firms surveyed in the United States, United Kingdom, France, and Germany suggest that realized ACAP plays an important role in determining firms’ growth. In terms of the interaction between firms’ ACAP and external relationships, we find that engagement with exploratory relationships depends strongly on the continuity of R&D, while participation in exploitative relationships is more conditional on firms’ realized ACAP.     

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.