Firm growth and R and D expenditure

Coad, Alex; Rao, Rekha

Abstract

We apply a panel vector autoregression model to a firm-level longitudinal database to observe the co-evolution of sales growth, employment growth, profits growth and the growth of research and development (R&D) expenditure. Contrary to expectations, profit growth seems to have little detectable association with subsequent R&D investment. Instead, firms appear to increase their total R&D expenditure following growth in sales and employment. In a sense, firms behave 'as if' they aim for a roughly constant ratio of R&D to employment (or sales). We observe heterogeneous effects for growing or shrinking firms, however, suggesting that firms are less willing to reduce their R&D levels following a negative growth shock than they are willing to increase R&D after a positive shock. © 2010 Taylor & Francis.

Citation

Coad, A., & Rao, R. (2010). Firm growth and R and D expenditure. Economics of Innovation and New Technology, 19(2), 127-145. https://doi.org/10.1080/10438590802472531

• Journal Article Type: Article
• Publication Date: Mar 1, 2010
• Journal: Economics of Innovation and New Technology
• Print ISSN: 1043-8599
• Electronic ISSN: 1476-8364
• Publisher: Taylor & Francis (Routledge)
• Peer Reviewed: Peer Reviewed
• Volume: 19
• Issue: 2
• Pages: 127-145
• DOI: https://doi.org/10.1080/10438590802472531
• Keywords: firm growth, panel VAR, R&D expenditure, industrial dynamics
• Public URL: https://uwe-repository.worktribe.com/output/984077
• Publisher URL: http://dx.doi.org/10.1080/10438590802472531