R&D employment effects of financial slack generated by R&D tax exemption: The importance of firm-level contingencies

This paper focuses on R&D employment effects due to financial slack generated by an R&D tax exemption scheme in Belgium. The tax exemption is granted without firm-level requirements, which facilitates testing firm-level contingencies on the influence of the generated financial slack. We find that R&D employment effects increase with the level of the R&D tax exemption related to financial slack resources and that this positive relation is more outspoken for older firms and for firms with an intermediate share of R&D tax exemptions in the overall mix of R&D policy support. No effects are found for firm size and its R&D intensity. These findings suggest targeting the R&D tax exemption support according to firm characteristics to obtain longer term R&D employment effects. The focus on R&D employment adds to the literature on the evaluation of R&D policies which is largely oriented toward R&D expenditure and innovation outputs.     

Modeling the firm's response to research & development tax credit policies

In this article, we develop a microeconomic model of normative firm behavior under the incentive of a research and development (R&D) tax credit. The model is based on the well-known concept of a two-factor learning model in which R&D expenditures and manufacturing capacity expansion are the principle determinants of cost reduction in a new technology product. We distinguish between the behavior of start-up firms and ongoing firms and study the potential impacts of progressively larger R&D tax credits. We find highly significant differences in the potential impact of the credit on start-up firms versus ongoing firms. We also find that the credit can significantly impact optimal product pricing of the technology when introduced into the marketplace. We examine the implications of this latter fact on the overall social cost of the R&D tax credit.     

Network positioning and R&D activity: a study of Italian groups

Traditionally, R&D studies focus on organisational characteristics and internal context factor effects on a firm's R&D activities. This paper extends previous research by analysing firm–level R&D expenditures in the wider context of inter–organisational networks. Using sample of 2002 manufacturing firms in Italy, it provides evidence that R&D intensity is linked to a firm's positioning within an industrial group's hierarchy. Further tests on the antecedents of R&D expenditures are carried out in relation to the effects of firm characteristics and industry factors. Important findings include a significant and positive association between R&D intensity and the firm's size, performance, intangible assets and industry concentration. These findings suggest that, in addition to firm–level factors and its market environment, network resources and organisation may play an important role in driving the intensity of the firm's R&D expenditures.     

The role of taxes in corporate research and development spending

This study replicates prior research regarding research and development (R&D) spending by sampling R&D spending for a cross‐section of firms in non‐service related industries. Compustat data for 231 firms from 1992 to 1998 are used to test whether the US Federal tax credit for R&D meaningfully influenced R&D spending of the sampled firms. Firms' (1) effective rate of R&D tax credit, (2) rate of decay in R&D capital for firms' primary industry affiliation, (3) financial cost of capital, and (4) marginal tax rate are used to compute firms' user‐cost of capital for in‐house R&D. Results show that firms that were eligible for the tax credit spent more on R&D than non‐eligible firms as the user‐cost of in‐house R&D increased. These results add further evidence regarding the role of the tax credit in stimulating R&D activity and suggest that a tax credit for incremental research can be used to boost private‐sector R&D spending.     

Excess Depreciation and the Maximum Tax*

The advantages of using an accelerated form of depreciation are significantly reduced for investors with substantial wage incomes. Excess depreciation is treated as a tax preference item under current tax rules which has the effect of imposing significant tax penalties on the high wage income individual who invests in rental property and who qualifies for the maximum tax on personal service income. Under certain circumstances accelerated depreciation methods may be inferior to the straight-line method. The explanation for this phenomenon lies in the interaction between tax preference income and the maximum tax.     

Letter From the Editor

This paper compares the United States depreciation rules, corporate income tax rates, and investment tax credits with the seven countries that have the highest direct investment from the U.S. These countries are Australia, Canada. France, Germany, Japan, the Netherlands, and the United Kingdom. For illustrative purposes, two comparative examples for computer systems and manufacturing equipment are included.     

Why did we make that cheese? An empirically based framework for understanding what drives innovation activity

In the more recent product development literature the interplay between R&D skills and competencies and market skills and competencies is seen as a major determinant of successful innovation. The study reported in this article was done in order to cast more light on these two constructs in an industry with low R&D expenditures, but where product development is nevertheless considered to be strategically important. That industry is the food processing industry. The results of a series of case studies indicate that constructs other than R&D and market orientation may be more appropriate for understanding innovation and explaining innovation success in the case material. A new set of constructs focusing on what causes specific innovation activities to occur is proposed and a revised framework is developed.     

R&D investment decision and optimal subsidy

This article assumes that a firm facing technological uncertainty must decide whether to purchase R&D capital at each instant. R&D capital exhibits both irreversibility and externality through the learning‐by‐doing effect. The combination of irreversibility and uncertainty drives agents to be more prudent; the maxim 'better safe than sorry' applies. This maxim is more important if uncertainty is greater, technology progresses at a lower pace, the externality is stronger, or a catastrophic event is less likely to occur. A firm ignoring the externality will both invest later and disinvest earlier than a social planner who internalizes the externality. An equal rate of investment tax credits should be given to both costlessly reversible investments and irreversible ones, and the same rate of taxation should be imposed on disinvestment.     

The effects of the chief technology officer and firm and industry R&D intensity on organizational performance

Between 1993 and 2013 the number and power of CTOs increased; as indicated in the percentage of firms with CTOs, their increasing presence on boards, their compensation relative to their CEOs, and compensation relative to other highly compensated executives. Firms which pursue an aggressive technology strategy (powerful CTO, high R&D spending) in industries in which technology is a critical contingency have well above normal market adjusted returns while those which pursue that strategy in industries in which technology is not critical have well below normal returns. These results empirically confirm longstanding, untested assumptions in the field of technology management. Moreover, the effect of R&D expenditures on firm performance is contingent on the degree to which technology is a critical contingency in the industry and on the power of the firm's CTO. These findings may explain the mixed results of past studies of the effects of R&D expenditure on firm performance. A model which integrates its own insights with those of earlier work on CTOs, R&D expenditures, firm strategy, and firm power dynamics is presented and supported.     

Minimum Tax,Recapture and Choice of Depreciation Methods*

This paper examines the problem of the trade-off between the possible minimum tax consequences of accelerated depreciation, the recapture of excess depreciation, and the choice of depreciation methods for maximizing investor wealth. The model is simulated for various ranges of the inputs to which the depreciation selection decision is sensitive. The results indicate that for high marginal tax rates, reasonably long holding periods, and reasonably high discount rates, the investor should select the accelerated methods after considering the minimum tax and recapture consequences.     

The Effects of Taxes and Organizational Variables on Research and Development Intensity

Prior research has failed to reach consensus on which variables explain private-sector research and development (R&D) spending. This study extends prior research explaining R&D spending of firms in the US private sector by regressing R&D intensity on a number of tax and organizational variables. COMPUSTAT data from 113 firms in 1994 are used to estimate the effects of the variables on R&D intensity (used interchangeably with R&D activity). Ordinary least square estimates indicate that firms that were eligible for the R&D credit had higher R&D activity than firms that were ineligible. R&D intensity is a decreasing function of both capital intensity and the debt to capital ratio. Neither management stockholding nor diversification strategy meaningfully influenced R&D activity. The reported results have implications regarding US tax policy towards the tax subsidy for R&D. The results also help to clarify prior findings regarding a number of organizational variables on R&D intensity. One implication of these results for US tax policy is that private sector R&D intensity can be meaningfully influenced by the level of tax subsidy.     

R&D spending,domestic competition,and export performance of Japanese manufacturing firms

This paper examines three factors influencing the export performances of Japanese manufacturing firms: R&D spending, domestic competitive position, and firm size. Export sales are positively associated with (1) R&D expenditures, (2) size of a firm, and (3) average R&D intensity of an industry. A firm's export ratio is related to the size of the firm, but not to the firm's and the industry's R&D intensities. Follower firms are characterized by higher export ratios than market leaders. The results indicate a relationship between the patterns of domestic competition and the international competitiveness of Japanese firms.     

Government policies and the feedmill industry in Nigeria

This paper considers the problems confronting the feedmill industry in Nigeria as among the structural distortions of the macroeconomy. It identifies lapses and inconsistencies in government policies which serve as modifying factors in the operation of the industry. Some policy measures capable of boosting the activities of the feedmill industry are suggested including tariff structures, tax holidays and tax relief, provision of adequate storage facilities, exemption from excise tax and a proper linkage between research and the feedmill industry.     

Accelerated Depreciation and Income Growth

This paper challenges the belief that accelerated depreciation methods are always superior to the straight-line method—especially for low-tax bracket owners of highly leveraged investments who have prospects for income growth. The root of the problem is our highly progressive income tax structure and the nature of loan amortization schedules which increase a debtor's taxable income while decreasing his net cash flows. When the entire personal and corporate tax schedules are used to test alternative depreciation methods, our simulation results demonstrate that the much maligned straight-line method is optimal for suitably low discount rates.     

Price indices for industrial R&D: A project level approach

In this paper a fairty tractable approach which managers could use to infer the rate of increase in relative RBD costs over time using actual RBD expenditure data is demonstrated. Two common measures of relative cost increase which in a sense represent bounds, the Laspeyres and Faaschs indices, are estimated for a firm, based on representative projects performed by the firm. The results which are consistent with rnothear study using company level data indicate that the official R&D statistics tend to exaggwate the increase during 1M9-79 in industrial RhQ performance. In particular using the GNP deftstor, one would appuently Qwmimate real 1979 R&D expenditures (in 1963 dolfatrs) by almost 20% in the chemical industry atone.     

A NEW PERSPECTIVE ON INDUSTRY R&D AND MARKET STRUCTURE*

This paper aims to shed some new insights on the long‐debated and both extensively and intensively explored relationship between market concentration and industry R&D intensity. In order to do so, this study develops, from a classic Dorfman‐Steiner [1954] model of firm R&D, a model of industry R&D, where consumer preference over quality and price, R&D technology, and the joint distribution of firm‐specific technological competence and market share jointly determine the level of industry R&D intensity. The joint distribution term, which reflects both the underlying distribution of firms‐specific technological competence and the strength of its link with market share, suggests that the concentration‐R&D relationship differs depending on the strength of the link or simply the appropriability of R&D in terms of market share: A positive relationship is predicted for low‐appropriability industries, where market concentration supplements low R&D appropriability, while a negative or an inverted U‐shaped relationship for high‐appropriability industries. An empirical analysis of data, disaggregated at the five‐digit SIC level, on R&D and market concentration of Korean manufacturing industries provides supportive evidence for the predictions.     

A structural analysis of process development in process industry: A new classification system for strategic project selection and portfolio balancing

A research project on the development of process technology in process industry led to recognition of the importance of a better classification of different types of process development. A new classification system and matrix have consequently been developed, using the dimensions 'newness to the world' and 'newness to the company'. The distribution of annual company expenditures for process development in the matrix and the estimated usability of the matrix have been tested as part of a larger survey conducted among R&D managers in European process industry. In view of the favourable response from industry, it is argued that the matrix could facilitate company portfolio balancing of process development projects, and that it is also necessary to distinguish between different types of process development in academic research.     

Intellectual property rights: An international economics perspective

This paper considers the enforcement of intellectual property rights in an international setting. I consider some of the traditional problems associated with protection of such rights in a closed economy and discuss complications added by an international dimension. Globally-optimal and nationally-optimal policies are compared. A simple model of policy choices is derived and optimal tax/subsidy and rights enforcement policies demonstrated. The paper concludes with a brief discussion of the current U.S. approach of discriminatory treatment on the basis of the national origin of an infringing product and argues that it is inferior to subsidies for providing incentives for R&D and to tariffs for shifting profits to U.S. firms.I am grateful to Marius Schwartz for helpful comments on earlier drafts of this paper. Any remaining errors are, of course, my own.     

Declared essential patents and average total R&D expenditures per patent family

The sharp increase in SEP declarations and declaring firms emphasizes the necessity for understanding firms’ innovation investment behavior in standardization. This paper empirically investigates whether declared standard-essential patents (SEPs) and the declaring firm’s business model (operationalized as a firm’s location in the value chain) are associated with a firm’s innovation investment behavior. To this end, we measure firms’ innovation investment behavior through average total research and development (R&D) expenditures per filed patent family for publicly listed firms from 1999 to 2018. Our sample mainly includes major SEP family declarants. We rely on a binary business model taxonomy differentiating upstream and downstream firms. Within that setting, total R&D expenditures rise with increasing fragmentation of declared SEP families, suggesting that firms adjust their R&D investments to declaration developments in standard-setting organizations (SSOs). We also show that upstream firms have significantly lower total R&D expenditures than downstream firms, which could indicate structural differences in their intellectual property (IP) and R&D management processes. Our results can help SSOs and regulators better understand firms’ innovation investment behavior.     

Are institutional investors myopic? A time-series study of four technology-driven industries

This paper examines the popular myth that managers in high-technology industries are altering their critical R&D investments in response to the short-term profit pressures of large institutional stockholders. The study entails an empirical examination of the relationship between R&D spending and institutional ownership over a 10-year period for 129 firms based in four research-intensive industries. Contrary to the view that institutional investors are having a damaging affect on R&D spending, after controlling for intervening effects the results suggest that higher levels of institutional ownership may be associated with greater R&D expenditures. A number of possible explanations for this finding are developed.