What’s good for the goose ain’t good for the gander: heterogeneous innovation capabilities and the performance effects of R&D

Alex Coad (), Nanditha Mathew and Emanuele Pugliese

Industrial and Corporate Change, 2020, vol. 29, issue 3, 621-644

Abstract: We investigate the effects of R&D investment on performance outcomes (sales growth and relative profitability) for Indian manufacturing firms. Previous research shows contradictory results—while some studies find a positive effect of R&D on firm performance, some find that firms investing in R&D do not perform significantly better, in some cases, even perform worse than their noninvesting counterparts. We claim that the effects of R&D on performance are often misspecified. Indeed, innovation capabilities will probably simultaneously influence the decision to invest in R&D and also R&D’s expected benefits. We apply endogenous switching regression to tackle the issue of selection and censored data, and the results we observe are sharp: Firms investing in R&D would have had less growth and less relative profitability if they had not done so. Interestingly, firms that did not invest in R&D would not have benefited had they done so. We interpret this as evidence that firms need to have sufficiently developed management capabilities to be able to convert R&D investments into tangible results, and that not all firms are well positioned to benefit from R&D investment.

JEL-codes: D22 L25 L6 O32 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (4)

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