A Longitudinal Study of the Impact of R&D,Patents, and Product Innovation on Firm Performance

Because of increasing levels of competition and decreasing product life cycles, a firm's ability to generate a continuous stream of innovations may be more important than ever in allowing a firm to improve profitability and maintain competitive advantage This paper investigates several issues that are central to an examination of the innovation productivity in a firm. First, the relationship between a firm's commitment to research and development and its innovative outcomes is examined. Two innovative outcomes are analyzed: (1) invention, which focuses on the development of new ideas; and (2) innovation, the development of commercially viable products or services from creative ideas. Invention is measured by the number of patents granted, and innovation is assessed by the number of new product announcements. Second, because many inventions ultimately result in marketable innovations and because patents may provide protection for new products, the relationship between patents and product announcements is also investigated. Finally, the ability of a firm to benefit from its inventions and innovations is studied by examining their separate effects on firm performance, measured as return on assets (ROA) and sales growth. Drawing from a sample of 272 firms in 35 industries over 19 years, the results from a model of simultaneous equations provided support for some of the hypotheses, but several other surprising findings were found. As expected, R&D spending was positively related to patents. This finding is consistent with others who argue that internal research capabilities, particularly those with a strong basic research component, is key to enabling a firm to generate creative outputs. More surprising was the finding of increasing returns to scale to R&D spending. While this contradicts much of the existing research, it is consistent with economic arguments for the advantages of scale in innovation. Also interesting is the finding that, while a significant curvilinear relationship exists between R&D spending and product announcements, it is not the predicted inverse‐U but instead a U‐shaped relationship. Consistent with previous work, product announcements were found to be positively related to both performance measures. A negative relationship was found between patents and both ROA and sales growth. While these findings were unexpected, they are intriguing and call into question the value of patents as protection mechanisms. In addition, these results may be resulting from the rise of strategic patenting, where an increasing number of firms are using patents as strategic weapons. As expected, a positive relationship was found between patents and new product announcements.     

Disappointment aversion equilibrium in a futures market

This article examines the effect of disappointment aversion on the equilibrium in a commodity futures market. Consider a commodity market with a producer and a speculator. We show that the equilibrium price is positively related to either agent's risk or disappointment aversion, and to the market volatility. The market trading volume is positively related to the producer's risk or disappointment aversion, but negatively related to the speculator's risk or disappointment aversion. The producer lowers his or her reference point in response to an increase in the risk aversion or disappointment aversion of either agent, and to an increase in spot price volatility. The speculator raises his or her reference point when the producer becomes more risk averse or disappointment averse, or when the spot price becomes more volatile. A more disappointment‐averse speculator will lower his or her reference point. However, a more risk‐averse speculator raises (lowers) the reference point if he or she is less (more) risk averse than the producer. Numerical examples are provided to further support the above analytical results. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:135–150, 2003     

The Tenacity of Antitrust Mythology: Dissenting from Mueller

This comment registers the author's reservations about Professor D.C. Mueller's proposals for revising federal merger policy and about the arguments that he advances in support of them. The comment especially questions the validity of the practice of using concentration data as the basis for inferring the presence or absence of monopoly power. It is argued that the analytical foundation for this practice is non-existent and that the purely statistical foundation is weak. The author finds persuasive Mueller's argument that, in recent decades, the merger activity of large firms has done little or nothing to increase the efficiency of the American economy. He believes that, right or wrong, what drives antitrust is fear of corporate size and power, not fear of textbook monopoly. Therefore, he believes consideration should be given to Mueller's proposal that the ambitious merger projects of large firms should not be allowed to go forward unless they promise some gain in efficiency.     

Capabilities, strategy and environment: the adaptation of the UK military aircraft industry to the Post-Cold war environment

This paper examines how companies in the UK' military aircraft industry have responded to the post-Cold War environment of reduced defence budgets. Giwen the substantial devline in levels of global defence spending since 1989, it is perhaps surprising that few companies have attempted to diversift out of defence markets. This paper considers the extent to which defence market environment has influenced the organizational capabilities possessed by companies potentially limiting their relevance to other markets, thus constraining the diversification opportunities available. The explanation suggested here is largely neo-Schumpeterain, where a company's interaction with, and interpretation of, its market environment results in it possessing rather specific and non-general capabilities. However, the natue of organizational capabilities was not found to be an adequate explanation on its own for the company strategy observed. Rather, strategy was as much influenced by the corporate focus on short-term economic considerations and the policy of central government towards both defence procurement changes and the lack of support given to diverisifications.     

Some Recent Developments in Futures Hedging

The use of futures contracts as a hedging instrument has been the focus of much research. At the theoretical level, an optimal hedge strategy is traditionally based on the expected–utility maximization paradigm. A simplification of this paradigm leads to the minimum–variance criterion. Although this paradigm is quite well accepted, alternative approaches have been sought. At the empirical level, research on futures hedging has benefited from the recent developments in the econometrics literature. Much research has been done on improving the estimation of the optimal hedge ratio. As more is known about the statistical properties of financial time series, more sophisticated estimation methods are proposed. In this survey we review some recent developments in futures hedging. We delineate the theoretical underpinning of various methods and discuss the econometric implementation of the methods.     

Optimal futures hedging for energy commodities: An application of the GAS model

This paper applies generalized autoregressive score-driven (GAS) models to futures hedging of crude oil and natural gas. For both commodities, the GAS framework captures the marginal distributions of spot and futures returns and corresponding dynamic copula correlations. We compare within-sample and out-of-sample hedging effectiveness of GAS models against constant ordinary least square (OLS) strategy and time-varying copula-based GARCH models in terms of volatility reduction and Value at Risk reduction. We show that the constant OLS hedge ratio is not inherently inferior to the time-varying alternatives. Nonetheless, GAS models tend to exhibit better hedging effectiveness than other strategies, particularly for natural gas.     

Evaluating the effects of cashing out employer-paid parking: Eight case studies

California law requires many employers to offer commuters the option to choose cash in lieu of any parking subsidy offered. This report presents case studies of eight firms that have complied with California's cash-out requirement. For the 1,694 employees of the eight firms, the number of solo drivers to work fell by 17 percent after cashing out. The number of carpoolers increased by 64 percent, the number of transit riders increased by 50 percent, and the number who walk or bike to work increased by 39 percent. Vehicle-miles traveled for commuting to the eight firms fell by 12 percent. Carbon dioxide emissions from commuting fell by 367 kilograms per employee per year. The eight firms' spending for commuting subsidies rose by $2 per employee per month because payments in lieu of parking increased slightly more than spending for parking declined. Federal and state income tax revenues increased by $65 per employee per year because many commuters voluntarily traded tax-exempt parking subsidies for taxable cash. Employers praised the cash option for its simplicity and fairness, and said that it helped to recruit and retain employees. The benefit/cost ratio of the eight cash-out programs was at least 4/1. In summary, these eight case studies show that cashing out employer-paid parking can benefit commuters, employers, taxpayers, and the environment. All these benefits derive from subsidizing people, not parking.     

Life in a Hutterite Colony: An Outsider's Experience and Reflections on a Forgotten People in Our Midst

In this study of the Hutterites, an Anabaptist Protestant sect tracing its roots to 1528, an attempt is made to discover the qualities that have enabled their colonies to survive and thrive in North America. It is found that the Hutterite beliefs of community of goods and self-surrender to the will of God are central factors which explain their long-term survival and the high degree of social cohesion they have achieved. The incentive to work for the common good, which has enabled them to remain economically viable as a relatively small community, are also directly attributable to religious belief. The author, who lived in a Hutterite colony as a participant-observer, found these additional significant elements contributing to Hutterite colony stability and growth: religious ritual, the structure of the family, a well defined division of labor, and a well-developed strategy for founding a new colony when the existing colony reaches a critical mass of 120-130 people. The study concludes with a discussion of what mainstream American society might learn from the Hutterites, including both critical and appreciative assessments of the life of this communal people whose members live quietly and effectively in our midst.