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The Impact of Firm’s R&D Strategy on Profit and Productivity

Author

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  • Johansson, Börje

    (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)

  • Lööf, Hans

    (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)

Abstract

This paper investigates how a firm’s R&D strategy influences the firm performance as measured by productivity and profitability. A formal production model is introduced to define and interpret alternative ways of measuring the impact of R&D. Studying 1,767 randomly selected firms from the Swedish manufacturing sector, the main findings are: (i) firms which apply persistent R&D perform better than firms with occasional as well as no R&D, (ii) occasional R&D is associated with lower performance than no R&D, and (iii) in quantile regressions the positive effect from R&D persistency is lacking for low productivity firms (lowest quartile) indicating a non-linear response. Moreover, the analysis recognises the different roles of ordinary and knowledge labour in production when specifying alternative performance measures and when identifying knowledge labour as a firm’s R&D capacity, which has a highly significant impact on firm performance. Introducing a formal production model in order to define and interpret alternative ways of measuring the impact of R&D, we apply simple ordinary OLS and quantile regressions on the economic model for analyzing the importance for a particular R&D strategy on firms’ productivity and profitability. To the best of our knowledge, we believe that the main findings of the analysis make contributions to the R&D literature.

Suggested Citation

  • Johansson, Börje & Lööf, Hans, 2008. "The Impact of Firm’s R&D Strategy on Profit and Productivity," Working Paper Series in Economics and Institutions of Innovation 156, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  • Handle: RePEc:hhs:cesisp:0156
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    References listed on IDEAS

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    10. Eklund, Johan & Wiberg, Daniel, 2007. "Persistence of profits and the systematic search for knowledge - R&D links to firm above-norm profits," Working Paper Series in Economics and Institutions of Innovation 85, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
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    Cited by:

    1. Bergman, Karin, 2011. "Internal and External R&D and Productivity – Evidence from Swedish Firm-Level Data," Working Papers 2011:27, Lund University, Department of Economics.
    2. Vanja Grozdić & Branislav Marić & Mladen Radišić & Jarmila Šebestová & Marcin Lis, 2020. "Capital Investments and Manufacturing Firms’ Performance: Panel-Data Analysis," Sustainability, MDPI, Open Access Journal, vol. 12(4), pages 1-18, February.
    3. Morgunov, V.I. (Моргунов, В.И.), 2016. "The Liquidity Management of the Banking Sector and the Short-Term Money Market Interest Rates [Управление Ликвидностью Банковского Сектора И Краткосрочной Процентной Ставкой Денежного Рынка]," Working Papers 21311, Russian Presidential Academy of National Economy and Public Administration.

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    More about this item

    Keywords

    R&D; productivity; profit; innovation; production analysis;
    All these keywords.

    JEL classification:

    • L19 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Other
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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