Firm growth and R&D expenditure

Coad, Alex and Rao, Rekha (2010) Firm growth and R&D expenditure. Economics of Innovation and New Technology, 19 (2). pp. 127-145. ISSN 1043-8599

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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.

Item Type: Article
Schools and Departments: School of Business, Management and Economics > SPRU - Science Policy Research Unit
Depositing User: Alex Coad
Date Deposited: 06 Feb 2012 20:43
Last Modified: 31 Jul 2013 14:08
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