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How Does Basic Research Improve Innovation Performance in the World’s Major Pharmaceutical Firms?

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  • Bart Leten
  • Stijn Kelchtermans
  • Rene Belderbos

Abstract

Employing a panel (1995-2015) of large R&D spending pharmaceutical firms, we investigate how internal basic research increases a firm’s innovative performance. We disentangle two mechanisms through which internal basic research affects technology development: (1) as strengthening of the firm’s absorptive capacity to build on externally conducted science, and (2) as a direct source of the firm’s innovation. We find that the positive relationship between internal basic research and innovation performance is significantly mediated by these two mechanisms, with the absorptive capacity mechanism relatively more important. The mediation relationships are more pronounced in recent years, with basic research as a direct source of innovation increasing in importance. This pattern is associated with a decline of corporate investments in basic research over time, and suggests that firms have adopted a more judicious and targeted approach to basic research aimed at getting more leverage out of a smaller commitment to basic research.

Suggested Citation

  • Bart Leten & Stijn Kelchtermans & Rene Belderbos, 2021. "How Does Basic Research Improve Innovation Performance in the World’s Major Pharmaceutical Firms?," Working Papers of Department of Management, Strategy and Innovation, Leuven 683901, KU Leuven, Faculty of Economics and Business (FEB), Department of Management, Strategy and Innovation, Leuven.
    • Handle: RePEc:ete:msiper:683901
    Note: paper number MSI_2111
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    Cited by:

    1. Arora, Ashish & Belenzon, Sharon & Dionisi, Bernardo, 2023. "First-mover advantage and the private value of public science," Research Policy, Elsevier, vol. 52(9).

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