Firm growth and R&D expenditure

Alex Coad () and Rekha Rao-Nicholson

Economics of Innovation and New Technology, 2010, vol. 19, issue 2, 127-145

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.

Keywords: firm growth; panel VAR; R&D expenditure; industrial dynamics (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (101)

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Working Paper: Firm Growth and R&D Expenditure (2007)
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DOI: 10.1080/10438590802472531

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