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Understanding the complex relationship between R&D investment and firm growth: A chaos perspective

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  • Yuan, Xuchuan
  • Nishant, Rohit

Abstract

Time delays and feedback loops often introduce nonlinear, dynamic, chaotic, or disorderly business patterns. In this paper, we argue that a firm’s growth driven by R&D can also exhibit chaotic behavior, through a simple model, where R&D has two distinct impacts on its revenue through the demand-inducing and cost-increasing effects. On the basis of a revenue-based investment strategy with anchoring and adjustment, the firm’s growth dynamics are characterized by a two-dimensional dynamical system under either the cost-plus or profit-maximizing pricing policies. Theoretical and numerical studies are used to show that growth can drive stable, periodic, and even chaotic behaviors. The findings suggest that R&D investment has more complex impacts on growth than previously envisioned, and that managerial decisions about R&D investments can cause fluctuations and erratic growth patterns in nonlinear and complex business environments.

Suggested Citation

  • Yuan, Xuchuan & Nishant, Rohit, 2021. "Understanding the complex relationship between R&D investment and firm growth: A chaos perspective," Journal of Business Research, Elsevier, vol. 129(C), pages 666-678.
    • Handle: RePEc:eee:jbrese:v:129:y:2021:i:c:p:666-678
    DOI: 10.1016/j.jbusres.2019.11.043
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