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Firm growth and R&D expenditure

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  • Alex Coad
  • Rekha Rao

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.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Economics of Innovation and New Technology.

Volume (Year): 19 (2010)
Issue (Month): 2 ()
Pages: 127-145

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Handle: RePEc:taf:ecinnt:v:19:y:2010:i:2:p:127-145

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Related research

Keywords: firm growth; panel VAR; R&D expenditure; industrial dynamics;

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References

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  1. Alex Coad, 2007. "Exploring the "mechanics" of firm growth : evidence from a short-panel VAR," Documents de travail du Centre d'Economie de la Sorbonne, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne r07037, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
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  5. Coad, Alex & Rao, Rekha, 2008. "Innovation and firm growth in high-tech sectors: A quantile regression approach," Research Policy, Elsevier, Elsevier, vol. 37(4), pages 633-648, May.
  6. Alex Coad, 2007. "Neoclassical vs evolutionary theories of financial constraints : critique and prospectus," Documents de travail du Centre d'Economie de la Sorbonne, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne r07008, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
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Citations

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Cited by:
  1. Matthias Bürger, 2011. "Dynamics of Collaborative Invention Tracking Growth of Cooperative and Total Patents in the Region," Jena Economic Research Papers, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics 2011-045, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  2. ELKEMALI, Taoufik & BEN REJEB, Aymen & MATOUSSI, Hamadi, 2013. "R&D Intensity and Financing Decisions: Evidence from European Firms," MPRA Paper 52059, University Library of Munich, Germany, revised 15 Oct 2013.
  3. Alex Coad & Agustí Segarra & Mercedes Teruel, 2010. "Like milk or wine: Does firm performance improve with age?," Papers on Economics and Evolution, Philipps University Marburg, Department of Geography 2010-06, Philipps University Marburg, Department of Geography.
  4. Alexander Coad, 2007. "Disentangling the firm growth process: evidence from a recursive panel VAR," Papers on Economics and Evolution, Philipps University Marburg, Department of Geography 2007-15, Philipps University Marburg, Department of Geography.
  5. Segarra Blasco, Agustí, 1958- & Teruel, Mercedes, 2014. "High-growth firms and innovation: an empirical analysis for Spanish firms," Working Papers, Universitat Rovira i Virgili, Department of Economics 2072/228402, Universitat Rovira i Virgili, Department of Economics.
  6. Crespo Cuaresma, Jesus & Oberhofer, Harald & Vincelette, Gallina A., 2014. "Institutional Barriers and Job Creation in Central and Eastern Europe," Working Papers in Economics and Finance, University of Salzburg 2014-1, University of Salzburg.
  7. Werner Hölzl, 2009. "Is the R&D behaviour of fast-growing SMEs different? Evidence from CIS III data for 16 countries," Small Business Economics, Springer, Springer, vol. 33(1), pages 59-75, June.
  8. Tommaso Ciarli, 2012. "Structural interactions and long run growth: An application of Experimental Design to Agent Based Models," Papers on Economics and Evolution, Philipps University Marburg, Department of Geography 2012-06, Philipps University Marburg, Department of Geography.
  9. Coad, Alex & Segarra Blasco, Agustí, 1958- & Teruel, Mercedes, 2013. "Innovation and firm growth: Does firm age play a role?," Working Papers, Universitat Rovira i Virgili, Department of Economics 2072/211886, Universitat Rovira i Virgili, Department of Economics.
  10. Jorge Alberto Rivera Godoy, 2012. "La incidencia de la innovación sobre la creación de valor: propuesta de un modelo desde la perspectiva financiera," REVISTA FACULTAD DE CIENCIAS ECONÓMICAS, UNIVERSIDAD MILITAR NUEVA GRANADA, UNIVERSIDAD MILITAR NUEVA GRANADA.
  11. Bettina Becker, 2013. "The Determinants of R&D Investment: A Survey of the Empirical Research," Discussion Paper Series, Department of Economics, Loughborough University 2013_09, Department of Economics, Loughborough University, revised Sep 2013.
  12. Werner Hölzl & Klaus Friesenbichler, 2010. "High-growth firms, innovation and the distance to the frontier," Economics Bulletin, AccessEcon, vol. 30(2), pages 1016-1024.
  13. Alessandra Colombelli & Jackie Krafft & Francesco Quatraro, 2012. "High Growth Firms and Technological Knowledge: Do gazelles follow exploration or exploitation strategies?," Working Papers, HAL hal-00666707, HAL.
  14. Segarra Blasco, Agustí & Teruel Carrizosa, Mercedes, 2011. "High Growth Firms and Innovation: an empirical analysis for Spanish firms," Working Papers, Universitat Rovira i Virgili, Department of Economics 2072/179669, Universitat Rovira i Virgili, Department of Economics.
  15. Bornhäll, Anders & Daunfeldt, Sven-Olov & Rudholm, Niklas, 2014. "Employment Protection Legislation and Firm Growth: Evidence from a Natural Experiment," HUI Working Papers, HUI Research 102, HUI Research.
  16. Florian Szücs, 2013. "M&A and R&D: Asymmetric Effects on Acquirers and Targets?," Discussion Papers of DIW Berlin, DIW Berlin, German Institute for Economic Research 1331, DIW Berlin, German Institute for Economic Research.
  17. Francesco Quatraro, 2013. "Co-evolutionary patterns in regional knowledge bases and economic structure: evidence from European Regions," Working Papers, HAL hal-00992080, HAL.
  18. Krzysztof Szczygielski & Wojciech Grabowski & Richard Woodward, 2013. "Innovation and the Growth of Service Firms:The Polish Case," CASE Network Studies and Analyses, CASE-Center for Social and Economic Research 0453, CASE-Center for Social and Economic Research.
  19. Alessandra Colombelli & Francesco Quatraro, 2013. "The persistence of firms' knowledge base: A quantile approach to Italian data," Working Papers, HAL hal-00867132, HAL.

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