How to make R&D effective? Distance-to-frontier in manufacturing and R&D returns

Yiru Wang, Yanxiang Xie and Yang Liu

Finance Research Letters, 2025, vol. 81, issue C

Abstract: This paper constructs an R&D return indicator (research quotient) and examines the impact of the distance-to-frontier in manufacturing on firms’ R&D returns. We document that reducing the distance-to-frontier enhances R&D return, exhibiting an increasing marginal effect. Structural analysis shows that both industry technological frontiers and cross-national technological frontiers improve R&D returns, with the impact of cross-national technological frontiers being more significant. Reducing the distance-to-frontier enhances firms’ R&D returns through investment-financing and supply-demand coordination mechanisms. Industry heterogeneity indicates that technology-intensive industries exhibit greater sensitivity to technological frontierization. Our paper provides new evidence on the factors trapping Chinese manufacturing firms in the “R&D return puzzle.”

Keywords: Distance-to-frontier; R&D returns; Investment-financing coordination; Supply-demand coordination (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:81:y:2025:i:c:s1544612325007536

DOI: 10.1016/j.frl.2025.107494

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