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

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Author Info
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. -- Unsicherheit ist ein immanenter Faktor von Forschungs- und Entwicklung (FuE) und hat einen grundlegenden Einfluss auf Investitionsentscheidungen. Die Literatur zu ?Real Options? Modellen bildet eine Basis für empirische Analysen von Investitionsentscheidungen, insbesondere wenn es sich um größtenteils irreversible Ausgaben wie FuE-Aktivitäten handelt. Wenn Profite solcher Investitionsprojekte ungewiss sind und Unternehmen diese Investition verzögern können, zeigen ökonomische Theorien, dass bei höherer Unsicherheit weniger investiert wird. Jedoch gibt es auch Modelle, die beschreiben, dass die Option die Investition zu verzögern, nicht profitabel sein muss, wenn Unternehmen einem hohen Konkurrenzdruck ausgesetzt sind, oder wenn diese FuE-Aktivitäten hinreichende Wachstumsmöglichkeiten versprechen. Durch solche gegensätzlichen Anreize ist der Effekt von Unsicherheit auf das Investitionsverhalten nicht eindeutig. In dieser Studie analysieren wir empirisch, wie Wettbewerb und Unternehmensgröße einen möglichen negativen Zusammenhang zwischen Investitionen und Unsicherheit beeinflussen. Mit Hilfe von Paneldaten können wir zeigen, dass Unternehmen bei höherer Unsicherheit über die erwarteten Profite tatsächlich weniger investieren. Jedoch ist der Effekt der firmenspezifischen Unsicherheit kleiner in konzentrierten Märkten sowie in Großunternehmen. Wir führen dies auf zwei Gründe zurück. In konzentrierten Märkten kann die strategische Interaktion zwischen Unternehmen intensiver sein als in anderen Märkten. Durch Innovationsaktivitäten kann ein Konkurrenzkampf in Produktmärkten vorweggenommen werden, sodass der negative Effekt von Unsicherheit reduziert wird. Ferner können Großunternehmen Erkenntnisse aus FuE-Aktivitäten besser in alternative Verwendungen transferieren als kleine Unternehmen (?economies of scope?), was auch zur Reduktion der negativen Investitionsanreize unter Unsicherheit führt.

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Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 08-013.

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Date of creation: 2008
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Handle: RePEc:zbw:zewdip:7122

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Related research
Keywords: Real Options Theory; Uncertainty; R&D; Competition; Firm Size;

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Find related papers by JEL classification:
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - 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; Investment Policy

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  1. Robert Novy-Marx, 2007. "An Equilibrium Model of Investment Under Uncertainty," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 20(5), pages 1461-1502, <. [Downloadable!] (restricted)
  2. Leahy, John V & Whited, Toni M, 1996. "The Effect of Uncertainty on Investment: Some Stylized Facts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(1), pages 64-83, February. [Downloadable!] (restricted)
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  3. Nick Bloom & Stephen Bond & John Van Reenen, 2007. "Uncertainty and Investment Dynamics," Review of Economic Studies, Blackwell Publishing, vol. 74(2), pages 391-415, 04. [Downloadable!] (restricted)
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  4. Luigi Guiso & Giuseppe Parigi, 1999. "Investment And Demand Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 185-227, February. [Downloadable!] (restricted)
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  5. Dietmar Harhoff, 1998. "Are there Financing Constraints for R&D and Investment in German Manufacturing Firms," Annales d'Economie et de Statistique, ADRES, issue 49-50, pages 17, Janvier-J. [Downloadable!]
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  6. Goel, Rajeev K. & Ram, Rati, 2001. "Irreversibility of R&D investment and the adverse effect of uncertainty: Evidence from the OECD countries," Economics Letters, Elsevier, vol. 71(2), pages 287-291, May. [Downloadable!] (restricted)
  7. Steven R. Grenadier, 2002. "Option Exercise Games: An Application to the Equilibrium Investment Strategies of Firms," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 15(3), pages 691-721.
  8. Weeds, Helen, 2002. "Strategic Delay in a Real Options Model of R&D Competition," Review of Economic Studies, Blackwell Publishing, vol. 69(3), pages 729-47, July.
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  9. Minton, Bernadette A. & Schrand, Catherine, 1999. "The impact of cash flow volatility on discretionary investment and the costs of debt and equity financing," Journal of Financial Economics, Elsevier, vol. 54(3), pages 423-460, December. [Downloadable!] (restricted)
  10. Zvi Griliches & Jacques Mairesse, 1981. "Productivity and R and D at the Firm Level," NBER Working Papers 0826, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Caballero, Ricardo J, 1991. "On the Sign of the Investment-Uncertainty Relationship," American Economic Review, American Economic Association, vol. 81(1), pages 279-88, March. [Downloadable!] (restricted)
  12. Christopher F. Baum & Mustafa Caglayan & Oleksandr Talavera, 2006. "Uncertainty Determinants of Firm Investment," Boston College Working Papers in Economics 646, Boston College Department of Economics, revised 24 Feb 2007. [Downloadable!]
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  13. Ghosal, Vivek & Loungani, Prakash, 1996. "Product Market Competition and the Impact of Price Uncertainty on Investment: Some Evidence from US Manufacturing Industries," Journal of Industrial Economics, Blackwell Publishing, vol. 44(2), pages 217-28, June. [Downloadable!] (restricted)
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