IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/23187.html
   My bibliography  Save this paper

Back to Basics: Why do Firms Invest in Research?

Author

Listed:
  • Ashish Arora
  • Sharon Belenzon
  • Lia Sheer

Abstract

If scientific knowledge is a public good, why do firms invest in research? This paper revisits this classic question with new data on patent citations to scientific publications by corporations. Using data on 4,736 firms for the period 1980-2006, we document that corporate investment in research is closely related to its use in internal invention. Specifically, firms that build on their scientific research in their inventive activity invest more in research than those that are less successful in using their research internally. Consistent with this, research that is internally used is valued more and is more productive. Our results are consistent with the view that to justify further investment in research corporate scientists need to demonstrate that their recent scientific work is useful for the core inventive activity of the sponsoring firm.

Suggested Citation

  • Ashish Arora & Sharon Belenzon & Lia Sheer, 2017. "Back to Basics: Why do Firms Invest in Research?," NBER Working Papers 23187, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:23187
    Note: PR
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w23187.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. W. Rupert Maclaurin, 1953. "The Sequence from Invention to Innovation and Its Relation to Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 67(1), pages 97-111.
    2. Bronwyn H. Hall & Adam Jaffe & Manuel Trajtenberg, 2005. "Market Value and Patent Citations," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 16-38, Spring.
    3. Zvi Griliches, 1998. "Productivity, R&D, and Basic Research at the Firm Level in the 1970s," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 82-99, National Bureau of Economic Research, Inc.
    4. Nicholas Bloom & Mark Schankerman & John Van Reenen, 2013. "Identifying Technology Spillovers and Product Market Rivalry," Econometrica, Econometric Society, vol. 81(4), pages 1347-1393, July.
    5. McMillan, G. Steven & Narin, Francis & Deeds, David L., 2000. "An analysis of the critical role of public science in innovation: the case of biotechnology," Research Policy, Elsevier, vol. 29(1), pages 1-8, January.
    6. Gambardella, Alfonso, 1992. "Competitive advantages from in-house scientific research: The US pharmaceutical industry in the 1980s," Research Policy, Elsevier, vol. 21(5), pages 391-407, October.
    7. Alfonso Gambardella & Claudio Panico & Giovanni Valentini, 2015. "Strategic incentives to human capital," Strategic Management Journal, Wiley Blackwell, vol. 36(1), pages 37-52, January.
    8. Hicks, Diana, 1995. "Published Papers, Tacit Competencies and Corporate Management of the Public/Private Character of Knowledge," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 4(2), pages 401-424.
    9. Cockburn, Iain M & Henderson, Rebecca M, 1998. "Absorptive Capacity, Coauthoring Behavior, and the Organization of Research in Drug Discovery," Journal of Industrial Economics, Wiley Blackwell, vol. 46(2), pages 157-182, June.
    10. Zvi Griliches, 1984. "Market Value, R&D, and Patents," NBER Chapters, in: R&D, Patents, and Productivity, pages 249-252, National Bureau of Economic Research, Inc.
    11. Frank R. Lichtenberg, 1986. "Private Investment in R&D to Signal Ability to Perform Government Contracts," NBER Working Papers 1974, National Bureau of Economic Research, Inc.
    12. Henry Sauermann & Wesley M. Cohen, 2010. "What Makes Them Tick? Employee Motives and Firm Innovation," Management Science, INFORMS, vol. 56(12), pages 2134-2153, December.
    13. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, vol. 99(397), pages 569-596, September.
    14. Gibbons, Michael & Johnston, Ron, 1974. "The roles of science in technological innovation," Research Policy, Elsevier, vol. 3(3), pages 220-242, November.
    15. Scott Stern, 2004. "Do Scientists Pay to Be Scientists?," Management Science, INFORMS, vol. 50(6), pages 835-853, June.
    16. Nathan ROSENBERG, 2009. "Why do firms do basic research (with their own money)?," World Scientific Book Chapters, in: Nathan Rosenberg (ed.), Studies On Science And The Innovation Process Selected Works of Nathan Rosenberg, chapter 11, pages 225-234, World Scientific Publishing Co. Pte. Ltd..
    17. Ashish Arora & Sharon Belenzon & Andrea Patacconi, 2015. "Killing the Golden Goose? The Decline of Science in Corporate R&D," NBER Working Papers 20902, National Bureau of Economic Research, Inc.
    18. Levinthal, Daniel & March, James G., 1981. "A model of adaptive organizational search," Journal of Economic Behavior & Organization, Elsevier, vol. 2(4), pages 307-333, December.
    19. Bonaccorsi, Andrea & Thoma, Grid, 2007. "Institutional complementarity and inventive performance in nano science and technology," Research Policy, Elsevier, vol. 36(6), pages 813-831, July.
    20. Richard C. Levin & Alvin K. Klevorick & Richard R. Nelson & Sidney G. Winter, 1987. "Appropriating the Returns from Industrial Research and Development," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(3, Specia), pages 783-832.
    21. Henrich R. Greve, 2007. "‘Exploration and exploitation in product innovation’," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 16(5), pages 945-975, October.
    22. Hicks, Diana & Breitzman, Tony & Olivastro, Dominic & Hamilton, Kimberly, 2001. "The changing composition of innovative activity in the US -- a portrait based on patent analysis," Research Policy, Elsevier, vol. 30(4), pages 681-703, April.
    23. Narin, Francis & Hamilton, Kimberly S. & Olivastro, Dominic, 1997. "The increasing linkage between U.S. technology and public science," Research Policy, Elsevier, vol. 26(3), pages 317-330, October.
    24. Audretsch, David B & Stephan, Paula E, 1996. "Company-Scientist Locational Links: The Case of Biotechnology," American Economic Review, American Economic Association, vol. 86(3), pages 641-652, June.
    25. Iain M. Cockburn & Rebecca M. Henderson, 1998. "Absorptive Capacity, Coauthoring Behavior, and the Organization of Research in Drug Discovery," Journal of Industrial Economics, Wiley Blackwell, vol. 46(2), pages 157-182, June.
    26. James G. March, 1991. "Exploration and Exploitation in Organizational Learning," Organization Science, INFORMS, vol. 2(1), pages 71-87, February.
    27. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626, National Bureau of Economic Research, Inc.
    28. Mowery, David & Rosenberg, Nathan, 1993. "The influence of market demand upon innovation: A critical review of some recent empirical studies," Research Policy, Elsevier, vol. 22(2), pages 107-108, April.
    29. Matt Marx & Deborah Strumsky & Lee Fleming, 2009. "Mobility, Skills, and the Michigan Non-Compete Experiment," Management Science, INFORMS, vol. 55(6), pages 875-889, June.
    30. Rosenberg, Nathan & Nelson, Richard R., 1994. "American universities and technical advance in industry," Research Policy, Elsevier, vol. 23(3), pages 323-348, May.
    31. Breschi, Stefano & Catalini, Christian, 2010. "Tracing the links between science and technology: An exploratory analysis of scientists' and inventors' networks," Research Policy, Elsevier, vol. 39(1), pages 14-26, February.
    32. Johan Bruneel & Pablo D’Este & Ammon Salter, 2016. "The impact of financial slack on explorative and exploitative knowledge sourcing from universities: evidence from the UK," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 25(4), pages 689-706.
    33. David Popp, 2016. "From Science to Technology: The Value of Knowledge From Different Energy Research Institutions," NBER Working Papers 22573, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Max Nathan & Anna Rosso, 2017. "Innovative events," Development Working Papers 429, Centro Studi Luca d'Agliano, University of Milano, revised 08 Apr 2019.
    2. Arora, Ashish & Belenzon, Sharon & Dionisi, Bernardo, 2023. "First-mover advantage and the private value of public science," Research Policy, Elsevier, vol. 52(9).
    3. Ashish Arora & Sharon Belenzon & Andrea Patacconi & Jungkyu Suh, 2020. "The Changing Structure of American Innovation: Some Cautionary Remarks for Economic Growth," Innovation Policy and the Economy, University of Chicago Press, vol. 20(1), pages 39-93.
    4. Roberto Camerani & Daniele Rotolo & Nicola Grassano, 2018. "Do firms publish? A multi-sectoral analysis," JRC Working Papers on Corporate R&D and Innovation 2018-05, Joint Research Centre.
    5. Righi, Cesare & Cannito, Davide & Vladasel, Theodor, 2023. "Continuing patent applications at the USPTO," Research Policy, Elsevier, vol. 52(4).
    6. Watzinger, Martin & Schnitzer, Monika, 2019. "Standing on the Shoulders of Science," Rationality and Competition Discussion Paper Series 215, CRC TRR 190 Rationality and Competition.
    7. Raphael Calel, 2020. "Adopt or Innovate: Understanding Technological Responses to Cap-and-Trade," American Economic Journal: Economic Policy, American Economic Association, vol. 12(3), pages 170-201, August.
    8. Yan Anthea Zhang & Zhuo Emma Chen & Yuandi Wang, 2021. "Which patents to use as loan collaterals? The role of newness of patents' external technology linkage," Strategic Management Journal, Wiley Blackwell, vol. 42(10), pages 1822-1849, October.
    9. Azagra-Caro, Joaquín M. & Tijssen, Robert J.W. & Tur, Elena M. & Yegros-Yegros, Alfredo, 2019. "University-industry scientific production and the Great Recession," Technological Forecasting and Social Change, Elsevier, vol. 139(C), pages 210-220.
    10. Mercedes Delgado & Fiona Murray, 2021. "Mapping the Regions, Organizations and Individuals That Drive Inclusion in the Innovation Economy," NBER Chapters, in: Entrepreneurship and Innovation Policy and the Economy, volume 1, pages 67-101, National Bureau of Economic Research, Inc.
    11. Matt Marx & Aaron Fuegi, 2020. "Reliance on science: Worldwide front‐page patent citations to scientific articles," Strategic Management Journal, Wiley Blackwell, vol. 41(9), pages 1572-1594, September.
    12. Ju, Xiaosheng & Jiang, Shengjun & Zhao, Qifeng, 2023. "Innovation effects of academic executives: Evidence from China," Research Policy, Elsevier, vol. 52(3).
    13. Kafouros, Mario & Aliyev, Murod & Krammer, Sorin M.S., 2021. "Do firms profit from patent litigation? The contingent roles of diversification and intangible assets," Research Policy, Elsevier, vol. 50(6).
    14. Cesare Righi & Davide Cannito & Theodor Vladasel, 2023. "Continuing patent applications at the USPTO," Economics Working Papers 1855, Department of Economics and Business, Universitat Pompeu Fabra.
    15. Lauriane Dewulf & Michele Cincera, 2018. "Academic Scientists: The Golden Opportunity For High-Tech Companies," Working Papers TIMES² 2018-030, ULB -- Universite Libre de Bruxelles.
    16. Buggenhagen, Magnus & Blind, Knut, 2022. "Development of 5G – Identifying organizations active in publishing, patenting, and standardization," Telecommunications Policy, Elsevier, vol. 46(4).
    17. Gómez-Aguayo, Ana María & Azagra-Caro, Joaquín M. & Benito-Amat, Carlos, 2022. "The steady effect of knowledge co-creation with universities on business scientific impact throughout the economic cycle," INGENIO (CSIC-UPV) Working Paper Series 202202, INGENIO (CSIC-UPV), revised 11 Jul 2022.
    18. Cesare Righi & Davide Cannito & Theodor Vladasel, 2023. "Continuing Patent Applications at the USPTO," Working Papers 1382, Barcelona School of Economics.
    19. James Harrigan & Ariell Reshef & Farid Toubal, 2023. "Techies and Firm Level Productivity," NBER Working Papers 31341, National Bureau of Economic Research, Inc.
    20. Matt Marx & Aaron Fuegi, 2022. "Reliance on science by inventors: Hybrid extraction of in‐text patent‐to‐article citations," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(2), pages 369-392, April.
    21. Becker, Annette & Hottenrott, Hanna & Mukherjee, Anwesha, 2022. "Division of labor in R&D? Firm size and specialization in corporate research," Journal of Economic Behavior & Organization, Elsevier, vol. 194(C), pages 1-23.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sheer, Lia, 2022. "Sitting on the Fence: Integrating the two worlds of scientific discovery and invention within the firm," Research Policy, Elsevier, vol. 51(7).
    2. Hsu, David H. & Hsu, Po-Hsuan & Zhao, Qifeng, 2021. "Rich on paper? Chinese firms’ academic publications, patents, and market value," Research Policy, Elsevier, vol. 50(9).
    3. Leten, Bart & Kelchtermans, Stijn & Belderbos, Ren, 2010. "Internal Basic Research, External Basic Research and the Technological Performance of Pharmaceutical Firms," Working Papers 2010/12, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
    4. Ashish Arora & Sharon Belenzon & Andrea Patacconi, 2015. "Killing the Golden Goose? The Decline of Science in Corporate R&D," NBER Working Papers 20902, National Bureau of Economic Research, Inc.
    5. Cohen, Wesley M., 2010. "Fifty Years of Empirical Studies of Innovative Activity and Performance," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 129-213, Elsevier.
    6. Markus Simeth & Michele Cincera, 2016. "Corporate Science, Innovation, and Firm Value," Management Science, INFORMS, vol. 62(7), pages 1970-1981, July.
    7. Choi, Jin-Uk & Lee, Chang-Yang, 2022. "The differential effects of basic research on firm R&D productivity: The conditioning role of technological diversification," Technovation, Elsevier, vol. 118(C).
    8. Simeth, Markus & Raffo, Julio D., 2013. "What makes companies pursue an Open Science strategy?," Research Policy, Elsevier, vol. 42(9), pages 1531-1543.
    9. Beck, Mathias & Junge, Martin & Kaiser, Ulrich, 2017. "Public Funding and Corporate Innovation," IZA Discussion Papers 11196, Institute of Labor Economics (IZA).
    10. Añón Higón, Dolores, 2016. "In-house versus external basic research and first-to-market innovations," Research Policy, Elsevier, vol. 45(4), pages 816-829.
    11. Yin Li & Jan Youtie & Philip Shapira, 2015. "Why do technology firms publish scientific papers? The strategic use of science by small and midsize enterprises in nanotechnology," The Journal of Technology Transfer, Springer, vol. 40(6), pages 1016-1033, December.
    12. Simeth, Markus & Lhuillery, Stephane, 2015. "How do firms develop capabilities for scientific disclosure?," Research Policy, Elsevier, vol. 44(7), pages 1283-1295.
    13. Sternitzke, Christian, 2010. "Knowledge sources, patent protection, and commercialization of pharmaceutical innovations," Research Policy, Elsevier, vol. 39(6), pages 810-821, July.
    14. Stephan, Paula E., 2010. "The Economics of Science," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 217-273, Elsevier.
    15. Pellens, Maikel & Della Malva, Antonio, 2016. "Changing of the guard: Structural change and corporate science in the semiconductor industry," ZEW Discussion Papers 16-050, ZEW - Leibniz Centre for European Economic Research.
    16. Breschi, Stefano & Catalini, Christian, 2010. "Tracing the links between science and technology: An exploratory analysis of scientists' and inventors' networks," Research Policy, Elsevier, vol. 39(1), pages 14-26, February.
    17. Lim, Kwanghui, 2004. "The relationship between research and innovation in the semiconductor and pharmaceutical industries (1981-1997)," Research Policy, Elsevier, vol. 33(2), pages 287-321, March.
    18. Martínez, Catalina & Parlane, Sarah, 2023. "Academic scientists in corporate R&D: A theoretical model," Research Policy, Elsevier, vol. 52(5).
    19. Fabrizio, Kira R., 2009. "Absorptive capacity and the search for innovation," Research Policy, Elsevier, vol. 38(2), pages 255-267, March.
    20. Gans, Joshua S. & Murray, Fiona E. & Stern, Scott, 2017. "Contracting over the disclosure of scientific knowledge: Intellectual property and academic publication," Research Policy, Elsevier, vol. 46(4), pages 820-835.

    More about this item

    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
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:23187. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.