The R&D Investment-Uncertainty Relationship: Do Competition and Firm Size Matter?

Andrew A. Toole and Dirk Czarnitzki

No 08-013, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: This paper investigates how competition and firm size affect the relationship between market uncertainty and R&D investment. We use an intuitively appealing measure of firm-specific uncertainty along with panel data to show that firms invest less in current R&D as uncertainty about market returns increases. The effect of firm-specific uncertainty on R&D investment is smaller in concentrated markets – those where market power is higher and strategic rivalry is more intense. Further, the effect of uncertainty on R&D investment is attenuated for large firms which may be the result greater economies of scope.

Keywords: Real Options Theory; Uncertainty; R&D; Competition; Firm Size (search for similar items in EconPapers)
JEL-codes: G31 L11 O31 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-com, nep-ind, nep-ino, nep-ipr, nep-pr~, nep-mic and nep-tid
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:7122

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