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

A. Coad*, N. Mathew, E. Pugliese

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

7 Citations (Web of Science)

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.
Original languageEnglish
Pages (from-to)621-644
Number of pages24
JournalIndustrial and Corporate Change
Volume29
Issue number3
DOIs
Publication statusPublished - Jun 2020
Externally publishedYes

JEL classifications

  • o25 - Industrial Policy
  • o32 - Management of Technological Innovation and R&D

Keywords

  • India
  • data interpretation
  • industrial development
  • industrial investment
  • industrial performance
  • industrial production
  • innovation
  • manufacturing
  • profitability
  • research and development
  • DEVELOPMENT INTENSITY
  • MARKET SELECTION
  • CORPORATE-GROWTH
  • FIRM GROWTH
  • EXPORTS
  • ABSORPTIVE-CAPACITY
  • TECHNOLOGY
  • KNOWLEDGE ACCUMULATION
  • SAMPLE SELECTION
  • PRODUCTIVITY GROWTH

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