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The R&D Investment-Uncertainty Relationship: Do Competition and Firm Size Matter?

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  • Toole, Andrew A.
  • Czarnitzki, Dirk

Abstract

This paper investigates how competition and firm size affect the relationship between market uncertainty and R&D investment. We use an intuitively appealing measure of firm-specific uncertainty along with panel data to show that firms invest less in current R&D as uncertainty about market returns increases. The effect of firm-specific uncertainty on R&D investment is smaller in concentrated markets – those where market power is higher and strategic rivalry is more intense. Further, the effect of uncertainty on R&D investment is attenuated for large firms which may be the result greater economies of scope.

Suggested Citation

  • Toole, Andrew A. & Czarnitzki, Dirk, 2008. "The R&D Investment-Uncertainty Relationship: Do Competition and Firm Size Matter?," ZEW Discussion Papers 08-013, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:7122
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    Real Options Theory; Uncertainty; R&D; Competition; Firm Size;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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