Innovating under different competitive strategies: The impact of R&D on risk and return in dynamic environments

The prevailing narrative in the management literature views R&D as a high-risk, high-return activity. Although firms with varying risk-return preferences pursue R&D, this conventional perspective continues to influence decision-making in both corporate strategy and economic policy. This paper questions the narrative by using a novel statistical framework that accounts for competitive strategy and environmental turbulences. Drawing on firm innovation data from the Community Innovation Survey (CIS), we apply semiparametric regression for location and scale to model both the mean and the variance of turnover growth as a function of the interaction between R&D intensity and environmental turbulence, across four common competitive strategy regimes. The findings reveal that for firms prioritizing price leadership across a broad product range, R&D is associated with reduced risk and minimal impact on average growth. Only for firms specifically focused on high quality or small product ranges, the results align with prior research, confirming the expected high-risk, high-return relationship associated with R&D.