Research and development spending and technical efficiency: evidence from biotechnology and pharmaceutical sector

Kevin Grant, Roman Matousek, Martin Meyer and Nickolaos G. Tzeremes

International Journal of Production Research, 2020, vol. 58, issue 20, 6170-6184

Abstract: Set within the expenditure context of the global financial crisis (GFC), this paper explores how the research and development (R&D) expenditures of biotechnology and pharmaceutical companies affect their technical efficiency levels. A balanced panel of 149 US firms operating in the biotechnology and pharmaceutical sector (covering the period 2000–2017) was employed. Output-oriented partial frontier measures were used to measure the effect of R&D expenditure on firms’ technical efficiency levels. Findings suggest that company efficiency is an important contributor on the effects of R&D on productivity and efficiency. Result suggests that a relationship between technical efficiency and R&D expenditure exhibits a ‘U’-shape relationship. The estimated efficiency of biotechnology firms is higher compared to pharmaceutical firms driven by their higher R&D expenditure levels. We demonstrate that R&D expenditures are essential for firm efficiency. We posit that a threshold level for achieving optimal efficiency levels exist, which can be used to inform managerial and policy-making decisions at the firm level.

Date: 2020
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Citations: View citations in EconPapers (5)

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DOI: 10.1080/00207543.2019.1671623

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