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.     

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.     

There will be exports and licensing: The effects of patent rights and innovation on firm sales

Previous work has focused on how intellectual property rights affect inward technology transfer. This paper is among the first to study whether patent rights contribute to outward technology transfers. Patent protection can affect the ability of firms to be sources of technology through its effects on innovation and commercialization. Using micro data, this paper finds that patent rights and innovation are positively associated with the exporting and licensing of firms, controlling for other determinants of technological capacity, although the effect is not symmetric across firms in all countries. Patent rights have a strong impact on the export and licensing activities of firms in developed countries, and only on the licensing activities of firms in developing countries. Moreover, transfers of technology develop sequentially – namely, exporting before licensing – due to the differing sunk costs of each type of entry. The results have implications for how innovation policies and activities contribute to the outward orientation of firms.     

Appropriation of Innovation and Patent Behaviors of Technological Firms in the Yangtze Delta Area

In the transition from “made in China” to “invented in China,” what is the motivation of Chinese firms in applying for patents? Why do some firms bypass patents? How is patenting developing within Chinese firms? This paper attempts to answer these questions using data of Chinese firms in the Yangtze River Delta region. Results indicate that, for product innovation, obtaining the lead time for market entry is of top priority in innovation protection, followed by confidentiality and patent protection. As for process innovation, confidentiality ranks first, followed by patent protection and obtaining the lead time. There is a significant and positive relationship between prior experience of patent licensing and possibility of future patent licensing. Firms with painful patent litigation experience tend to avoid it in the future. It is also found that there are great differences in patent behaviors between Chinese enterprises and their foreign counterparts.     

Endogenous market structures and the gains from foreign direct investment

This paper discusses the gains from liberalizing foreign direct investment (FDI) in a two-country setting with endogenous market structure. We investigate two different scenarios. In the first scenario, headquarters costs are large in the foreign country so that the industry is located in the domestic country only. In this case, multinational and national firms may coexist and market concentration may make FDI welfare improving for the foreign country and welfare reducing for the domestic country. In the second scenario, headquarters costs are symmetric and firms will be located in both countries. Here, profitable FDI activities lead to mutual welfare gains, irrespective of market structure effects.     

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.     

Some New Evidence on the Determinants of Large- and Small-Firm Innovation

Empirical analyses presented by Acs and Audretsch suggest differences in the market structure determinants of innovation between large and small firms in U.S. manufacturing. The evidence they offer is ambiguous. By using data for a different country (The Netherlands), a different measure of innovation and a different aggregation level, we offer new evidence, allowing a revaluation of the findings for the U.S. material. Moreover, the influence of the market structure determinants does not appear to differ between a period of sluggish growth (1983) and one of relatively high growth (1989).     

Networks,Firm Size and Innovation

Using survey data on Australian firms this paper investigates the determinants of innovation. Various possible determinants are investigated, including market structure, export status, the use of networks, and training. Regression analysis is conducted separately for manufacturing and non-manufacturing firms and, within each sector, by firm size categories. The results include evidence of persistence in innovative activities and that the use of networks is associated with innovation in some sector-firm size categories. Specifically, small manufacturing firms exhibit a positive association between networking and innovation. In contrast, for non-manufacturing firms this association is present for medium and large sized firms.     

Incremental Innovation and Business Performance: Small and Medium-Size Food Enterprises in a Concentrated Industry Environment

Past studies have analyzed issues pertaining to the definition of innovation, methods of measuring innovation and the relationship between organizational characteristics and innovation orientation. Extant studies have adopted a large business or a technologically intense context of study. By studying the adoption of new products, methods, systems, markets, and supply sources in small and medium-size seafood retail enterprises, this study reviews innovation and the adoption of innovation in a broader and novel context. Seafood retailers in this study operate in a concentrated industry environment where two large supermarket chains account for more than 70 percent of national food retail sales. The seafood retailers operate in a highly competitive environment, the industry is maturing, the firms are not very advanced technologically, and the sector has a disproportionately large number of firms owned and operated by persons of non-English speaking backgrounds. The results of the study indicate that incremental innovation offers substantial competitive advantages to small and medium-size firms, that incremental innovations can be adopted and operationalized rapidly by entrepreneurs with different cultural backgrounds and skills, and that small and medium-size firms that focus on sales and marketing innovations are profitable and are able to compete successfully with large businesses.     

Stock market,credit market,and heterogeneous innovations

The relative importance of credit market development and stock market development in boosting innovation remains a long-standing debate issue. In this study, we document how different types of financial markets development affect heterogeneous innovations. Using a broad sample across 42 developed and emerging economies and a generalized difference-in-differences identification strategy, we find that stock market development leads to significantly higher substantive innovation, especially in young and small firms, but has negative impact on incremental innovation. Conversely, credit market development promotes incremental innovation, especially in mature and large firms, but has negative impact on substantive innovation. Further analyses indicate that stronger shareholder protection enhances the positive impact of stock market on substantive innovation, while stronger creditor rights enhance the promoting effect of credit market on incremental innovation, and even turn the negative impact of credit market on substantive innovation into positive. Our paper provides new insights into the heterogeneous effects of credit market and equity markets on the real economy.     

Evaluating offshore and domestic production in the apparel industry: The small firm’s perspective

This paper extends the existing literature on the potential advantages and drawbacks of domestic and offshore manufacturing strategies to a small firm perspective. The advantages of offshore production to the large corporation have received much attention in recent years, particularly with regards to the apparel industry. The key advantages of offshore production are obvious for the large firm: cost reductions and increased productivity through labour market differentials. Little is known however about the viability and attractiveness of this strategy for the small apparel firm. The high number of small apparel firms who continue to produce in their domestic market, despite labour market differentials, suggests that the cost advantages of producing offshore may not be as critical for the competitive advantage of many of these small firms. Four case studies of small New Zealand apparel firms are used to substantiate and expand on themes developed from the literature.     

Cost of capital and market power: The effect of size dispersion & entry barriers on market equilibrium

A market power explanation for the observed empirical fact that large firms in a given industry pay less for their capital than small is developed. Larger firms in an industry are shown to pay less for their capital than small because they have more control over the market and the riskiness of their divided stream is correspondingly smaller. More firms in an industry with a given size dispersion raises the cost of capital to the incumbents, but proportionately more to smaller firms. However, the most significant result is that a greater dispersion of sizes will reduce the riskiness of the dividend stream of the larger firm and increase the riskiness of the smaller firm, causing an increase in the dispersion of capital costs. Hence product market power enhances capital cost efficiencies.     

A componovation perspective of innovation in emerging markets: Evidence from Indian organizations

In todays market landscape firms can effectively compete without the benefit of resource advantages, proprietary technology, or market power but by being more aligned towards creative combination and responsive innovation. This study approaches the concept of componovation from the composition based view (CBV) developed by Luo and Child. The CBV emphasizes how firms with ordinary resource endowments can achieve outstanding results through the creative use of open resources and unique integrating capabilities that result in an enhanced speed and a value‐price ratio that are well suited to large numbers of mass market consumers. Thus componovation is a new approach aimed at innovation in emerging markets.     

Small firms and the merger mania

Empirical research has found an average or even superior performance of small firms. This seems to be at variance with the secular concentration process and the recurrent merger waves. This paper tries to integrate size and merger research. Higher profitability of small firms is explained by their incentive structure and shorter decision lags but also by lower wages and higher individual risk (premia). Their faster growth in the eighties was, in addition, fostered by diversification of demand, miniaturization of technology, and a need for flexibility under uncertainty. The merger wave on the other hand does not necessarily prove that large firms are superior. Managers and shareholders may be seduced by stockmarket optimism, a sizeable industry of banks, agents and lawyers have their own interests in mergers, mergers may be important in declining markets and for the acquisition of technology. On average, mergers do not improve efficiency, profits or internal growth. Small and large firms serve different purposes. Performance depends on the market, incentives and technology. The establishment, growth and closure of small firms as well as mergers are attempts to find the optimal organization for utility maximization in a world of severe uncertainty and diverse needs.     

New Evidence on Determinants of Intellectual Property Litigation: A Market-Based Approach

Abstract

We contribute to the economic literature on patent litigation by taking a new perspective. In the past, scholars mostly focused on specific litigation cases at the patent level and related technological characteristics to the event of litigation. However, observing intellectual property (IP) disputes suggests that not only technological characteristics may trigger litigation suits, but also the market positions of firms, and that firms dispute not only over single patents but often over portfolios. This paper examines the occurrence of IP litigation cases in Belgian firms using the 2013 Community Innovation Survey with supplemental information on IP litigation and patent portfolios. The rich survey information regarding firms’ general innovation strategies enables us to introduce market-related variables such as sales with new products, as well as sales based mainly on imitation and incremental innovation. Our results indicate that when controlling for firms’ IP portfolios, the composition of sales in terms of innovation and imitation has additional explanatory power regarding litigation propensities. Firms with high sales from innovations are more likely to become plaintiffs in court. Contrastingly, firms with high sales from incremental innovation and imitation are more likely to become defendants in court and, moreover, are more likely to negotiate settlements outside of court.     

Competition and product innovation in dynamic oligopoly

We investigate the relationship between competition and innovation using a dynamic oligopoly model that endogenizes both the long-run innovation rate and market structure. We use the model to examine how various determinants of competition, such as product substitutability, entry costs, and innovation spillovers, affect firms’ equilibrium strategies for entry, exit, and investment in product quality. We find an inverted-U relationship between product substitutability and innovation: the returns to innovation initially rise for all firms but eventually, as the market approaches a winner-take-all environment, laggards have few residual profits to fight over and give up pursuit of the leader, knowing he will defend his lead. The increasing portion of the inverted-U reflects changes in firm’s investment policy functions, whereas the decreasing portion arises from the industry transiting to states with fewer firms and wider quality gaps. Allowing market structure to be endogenous yields different results compared to extant work that fixes or exogenously varies the market structure.     

Key service innovation drivers in the tourism sector: empirical evidence and managerial implications

This study highlights the importance of market orientation and the use of information and communication technologies (ICT) as determinants of service innovation activity for companies in the tourism sector. In doing so, the study provides a means to classify companies as innovative or not. Using a sample of 100 Spanish firms from different branches of the tourism sector, we confirm and extend prior research. In particular, market orientation??especially a customer orientation??is critical for developing new services that lead to competitive advantages. In addition, ICT have a dual, direct, and indirect influence on service innovation.     

A research note on market creation in the pharmaceutical industry

When a firm launches a market-creating innovation, it launches a new product for which there are no close product substitutes. Thus, the new product causes a shift in the existing product-market structure of an industry. This paper reports on the findings of the analysis of 51 large pharmaceutical firms and their market-creating activities. The study suggests that market-creating firms have capabilities in both R&D and marketing. Furthermore, market-creating firms enjoy stronger efficiencies, manage costs better and make more profitable use of their assets.     

The Impact of Knowledge Acquisition and Absorptive Capacity on Technological Innovations in Developing Countries: Evidence From Egyptian Small and Medium-Sized Enterprises

The author examines the determinants of technological innovations in Egyptian manufacturing and service small and medium-sized enterprises. Three categories of determinants are explored: (a) firms’ exposure to external knowledge and technologies, (b) firms’ absorptive capacity, and (c) financial and market barriers to innovation. A large dataset derived from the 2009 Egyptian innovation survey is used to estimate two binary logit models of factors explaining firms’ propensity to innovate in the manufacturing and service sectors. Results show that Egyptian manufacturing and service small and medium-sized enterprises follow similar paths to innovate and confirm the assumption that the catching-up reality in most developing countries makes the patterns followed by firms to innovate fundamentally different from those applied in countries at the technology frontier.     

New technologies and technological information in small businesses

The use of new management and production technologies is essential for most small businesses if they are to improve their competitiveness and thus face up to increasing national and international competition. This presupposes access to scientific, innovative, and technological information, making firms aware of developments in technology and the resources available for obtaining and using the technology correctly.Many authors have already shown that small businesses lag far behind large firms in their use of new technologies. Some reasons put forward to explain this include the more generally limited resources of small firms and a national structure for the production and transfer of new information that is poorly adapted to small business needs. However, assuming that some gap between small and large firms actually exists, how can we explain that most small firms nevertheless not only survive, often for a very long time, but also produce a return comparable to large firms?One way of doing this is to study the situation of small businesses by using methods adapted to the small business sector and not developed for large firms. It is important to analyze not only the characteristics of the firms themselves, but also what they do to become competitive.Our own research in the small business field has shown that the lag in terms of new computer technologies has decreased considerably in recent years, and also that it tends to be smaller in many industries if specific advanced technologies are added. The perspective also changes if we examine the innovation capacity of small business, and its ability to develop niches or to work on smaller and more specific markets.The same applies to technological watch. An inquiry following a case study shows that small firms use different channels according to their objectives and turn to networks to overcome the limits of the information transfer system they use. They evaluate information by comparing different sources, and they use iterative techniques and intuition to complete their information and to decide on their investments. New technology acquisition by small and large firms cannot be compared; for small firms, it is an entrepreneurial act that in no way resembles the behavior of larger firms.However, to understand small businesses, further research is required into their behavior in different kinds of decision-making situations. To do this, we need tools developed specifically for the small business sector, free of any presumption of the supposedly better performance of large-scale production.