IDEAS home Printed from https://ideas.repec.org/p/ssa/lemwps/2017-21.html
   My bibliography  Save this paper

What's good for the goose ain't good for the gander: cock-eyed counterfactuals and the performance effects of R&D

Author

Listed:
  • Alex Coad
  • Nanditha Mathew
  • Emanuele Pugliese

Abstract

We investigate the effects of R&D investment on performance outcomes (sales growth and relative profitability) for Indian manufacturing firms. Previous research shows contradictory results - while some studies find a positive effect of R&D on firm performance, some find that firms investing in R&D do not perform significantly better, in some cases, even perform worse than their non-investing counterparts. We claim that the effects of R&D on performance are often mis-specified: The contradictory results are likely due to 1) inverse causality, i.e., firms invest in R&D as a function of sales growth and/or 2) a bias caused by censored data (i.e. R&D investment has a lower bound at zero). We apply endogenous switching regression to tackle the issue of selection and censored data, and the results we observe are sharp: firms investing in R&D would have had less growth and less relative profitability if they had not done so. Interestingly, firms that did not invest in R&D would not have benefited had they done so.

Suggested Citation

  • Alex Coad & Nanditha Mathew & Emanuele Pugliese, 2017. "What's good for the goose ain't good for the gander: cock-eyed counterfactuals and the performance effects of R&D," LEM Papers Series 2017/21, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    • Handle: RePEc:ssa:lemwps:2017/21
    as

    Download full text from publisher

    File URL: http://www.lem.sssup.it/WPLem/files/2017-21.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Areti Gkypali & Kostas Tsekouras, 2015. "Productive performance based on R&D activities of low-tech firms: an antecedent of the decision to export?," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 24(8), pages 801-828, November.
    2. Antonelli, Cristiano, 1989. "A failure-inducement model of research and development expenditure : Italian evidence from the early 1980s," Journal of Economic Behavior & Organization, Elsevier, vol. 12(2), pages 159-180, October.
    3. Mariana Mazzucato & Stuart Parris, 2015. "High-growth firms in changing competitive environments: the US pharmaceutical industry (1963 to 2002)," Small Business Economics, Springer, vol. 44(1), pages 145-170, January.
    4. Marco Capasso & Tania Treibich & Bart Verspagen, 2015. "The medium-term effect of R&D on firm growth," Small Business Economics, Springer, vol. 45(1), pages 39-62, June.
    5. Marco Corsino & Roberto Gabriele, 2011. "Product innovation and firm growth: evidence from the integrated circuit industry," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 20(1), pages 29-56, February.
    6. Malerba,Franco & Brusoni,Stefano (ed.), 2007. "Perspectives on Innovation," Cambridge Books, Cambridge University Press, number 9780521685610.
    7. Cohen, Wesley M & Klepper, Steven, 1992. "The Anatomy of Industry R&D Intensity Distributions," American Economic Review, American Economic Association, vol. 82(4), pages 773-799, September.
    8. Bottazzi, Giulio & Dosi, Giovanni & Lippi, Marco & Pammolli, Fabio & Riccaboni, Massimo, 2001. "Innovation and corporate growth in the evolution of the drug industry," International Journal of Industrial Organization, Elsevier, vol. 19(7), pages 1161-1187, July.
    9. Bruno Crepon & Emmanuel Duguet & Jacques Mairesse, 1998. "Research, Innovation And Productivity: An Econometric Analysis At The Firm Level," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 7(2), pages 115-158.
    10. Stefano Bianchini & Gabriele Pellegrino & Federico Tamagni, 2016. "Innovation Strategies and Firm Growth," LEM Papers Series 2016/03, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    11. Sapio, Alessandro, 2015. "The effects of renewables in space and time: A regime switching model of the Italian power price," Energy Policy, Elsevier, vol. 85(C), pages 487-499.
    12. Caterina Santi & Pietro Santoleri, 2017. "Exploring the link between innovation and growth in Chilean firms," Small Business Economics, Springer, vol. 49(2), pages 445-467, August.
    13. Hall, Bronwyn H. & Mairesse, Jacques & Mohnen, Pierre, 2010. "Measuring the Returns to R&D," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 2, chapter 0, pages 1033-1082, Elsevier.
    14. Erik Stam & Karl Wennberg, 2009. "The roles of R&D in new firm growth," Small Business Economics, Springer, vol. 33(1), pages 77-89, June.
    15. Patrick Puhani, 2000. "The Heckman Correction for Sample Selection and Its Critique," Journal of Economic Surveys, Wiley Blackwell, vol. 14(1), pages 53-68, February.
    16. Pelin Demirel & Mariana Mazzucato, 2012. "Innovation and Firm Growth: Is R&D Worth It?," Industry and Innovation, Taylor & Francis Journals, vol. 19(1), pages 45-62, January.
    17. Singh, L., 1994. "Productivity, Competitiveness, and Export Growth in a Less Developed Economy: a Study of Indian Punjab," Papers 714, Yale - Economic Growth Center.
    18. Coad, Alex & Rao, Rekha, 2008. "Innovation and firm growth in high-tech sectors: A quantile regression approach," Research Policy, Elsevier, vol. 37(4), pages 633-648, May.
    19. Cristiano Antonelli & Giuseppe Scellato, 2011. "Out-of-equilibrium profit and innovation," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 20(5), pages 405-421.
    20. Kunapatarawong, Rasi & Martínez-Ros, Ester, 2016. "Towards green growth: How does green innovation affect employment?," Research Policy, Elsevier, vol. 45(6), pages 1218-1232.
    21. Giovanni Dosi & Daniele Moschella & Emanuele Pugliese & Federico Tamagni, 2015. "Productivity, market selection, and corporate growth: comparative evidence across US and Europe," Small Business Economics, Springer, vol. 45(3), pages 643-672, October.
    22. Werner Hölzl, 2009. "Is the R&D behaviour of fast-growing SMEs different? Evidence from CIS III data for 16 countries," Small Business Economics, Springer, vol. 33(1), pages 59-75, June.
    23. Jose Manuel Campa & Simi Kedia, 2002. "Explaining the Diversification Discount," Journal of Finance, American Finance Association, vol. 57(4), pages 1731-1762, August.
    24. Del Monte, Alfredo & Papagni, Erasmo, 2003. "R&D and the growth of firms: empirical analysis of a panel of Italian firms," Research Policy, Elsevier, vol. 32(6), pages 1003-1014, June.
    25. Pinelopi Koujianou Goldberg & Amit Kumar Khandelwal & Nina Pavcnik & Petia Topalova, 2010. "Imported Intermediate Inputs and Domestic Product Growth: Evidence from India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(4), pages 1727-1767.
    26. Micheline Goedhuys & Leo Sleuwaegen, 2010. "High-growth entrepreneurial firms in Africa: a quantile regression approach," Small Business Economics, Springer, vol. 34(1), pages 31-51, January.
    27. Alex Coad, 2009. "The Growth of Firms," Books, Edward Elgar Publishing, number 13424.
    28. Crepon, B. & Duguet, E. & Mairesse, J., 1998. "Research Investment, Innovation and Productivity: An Econometric Analysis at the Firm Level," Papiers d'Economie Mathématique et Applications 98.15, Université Panthéon-Sorbonne (Paris 1).
    29. Michael Lokshin & Zurab Sajaia, 2004. "Maximum likelihood estimation of endogenous switching regression models," Stata Journal, StataCorp LP, vol. 4(3), pages 282-289, September.
    30. Frank Crowley & Philip McCann, 2018. "Firm innovation and productivity in Europe: evidence from innovation-driven and transition-driven economies," Applied Economics, Taylor & Francis Journals, vol. 50(11), pages 1203-1221, March.
    31. Paul Geroski, 1995. "Innovation and Competitive Advantage," OECD Economics Department Working Papers 159, OECD Publishing.
    32. Nanditha Mathew, 2017. "Drivers of firm growth: micro-evidence from Indian manufacturing," Journal of Evolutionary Economics, Springer, vol. 27(3), pages 585-611, July.
    33. Bronwyn H. Hall & Nathan Rosenberg (ed.), 2010. "Handbook of the Economics of Innovation," Handbook of the Economics of Innovation, Elsevier, edition 1, volume 1, number 1.
    34. Henk W. Volberda & Nicolai J. Foss & Marjorie A. Lyles, 2010. "PERSPECTIVE---Absorbing the Concept of Absorptive Capacity: How to Realize Its Potential in the Organization Field," Organization Science, INFORMS, vol. 21(4), pages 931-951, August.
    35. Mario Kafouros & Chengqi Wang, 2008. "The Role of Time in Assessing the Economic Effects of R&D," Industry and Innovation, Taylor & Francis Journals, vol. 15(3), pages 233-251.
    36. Maddala, G.S., 1986. "Disequilibrium, self-selection, and switching models," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 3, chapter 28, pages 1633-1688, Elsevier.
    37. Petia Topalova & Amit Khandelwal, 2011. "Trade Liberalization and Firm Productivity: The Case of India," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 995-1009, August.
    38. Coad, Alex & Segarra, Agustí & Teruel, Mercedes, 2016. "Innovation and firm growth: Does firm age play a role?," Research Policy, Elsevier, vol. 45(2), pages 387-400.
    39. Brouwer, Erik & Kleinknecht, Alfred & Reijnen, Jeroen O N, 1993. "Employment Growth and Innovation at the Firm Level," Journal of Evolutionary Economics, Springer, vol. 3(2), pages 153-159, May.
    40. Franco Malerba, 2007. "Innovation and the evolution of industries," Springer Books, in: Uwe Cantner & Franco Malerba (ed.), Innovation, Industrial Dynamics and Structural Transformation, pages 7-27, Springer.
    41. Hall, Bronwyn H, 1987. "The Relationship between Firm Size and Firm Growth in the U.S. Manufacturing Sector," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 583-606, June.
    42. Malerba,Franco & Brusoni,Stefano (ed.), 2007. "Perspectives on Innovation," Cambridge Books, Cambridge University Press, number 9780521866644.
    43. Martin Falk, 2012. "Quantile estimates of the impact of R&D intensity on firm performance," Small Business Economics, Springer, vol. 39(1), pages 19-37, July.
    44. David Audretsch & Agustí Segarra & Mercedes Teruel, 2014. "Why don't all young firms invest in R&D?," Small Business Economics, Springer, vol. 43(4), pages 751-766, December.
    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. Marco Capasso & Marina Rybalka, 2022. "Innovation Pattern Heterogeneity: Data-Driven Retrieval of Firms’ Approaches to Innovation," Businesses, MDPI, vol. 2(1), pages 1-28, March.
    2. Marco Grazzi & Nanditha Mathew & Daniele Moschella, 2021. "Making one’s own way: jumping ahead in the capability space and exporting among Indian firms," Journal of Evolutionary Economics, Springer, vol. 31(3), pages 931-957, July.

    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. Guarascio, Dario & Tamagni, Federico, 2019. "Persistence of innovation and patterns of firm growth," Research Policy, Elsevier, vol. 48(6), pages 1493-1512.
    2. Coad, Alex & Segarra, Agustí & Teruel, Mercedes, 2016. "Innovation and firm growth: Does firm age play a role?," Research Policy, Elsevier, vol. 45(2), pages 387-400.
    3. Caterina Santi & Pietro Santoleri, 2017. "Exploring the link between innovation and growth in Chilean firms," Small Business Economics, Springer, vol. 49(2), pages 445-467, August.
    4. SooGeun Ahn & Jeewhan Yoon & YoungJun Kim, 2018. "The innovation activities of small and medium-sized enterprises and their growth: quantile regression analysis and structural equation modeling," The Journal of Technology Transfer, Springer, vol. 43(2), pages 316-342, April.
    5. Daniele Moschella & Federico Tamagni & Xiaodan Yu, 2019. "Persistent high-growth firms in China’s manufacturing," Small Business Economics, Springer, vol. 52(3), pages 573-594, March.
    6. Farasat A. S. Bokhari & Franco Mariuzzo & Anna Rita Bennato, 2021. "Innovation and growth in the UK pharmaceuticals: the case of product and marketing introductions," Small Business Economics, Springer, vol. 57(1), pages 603-634, June.
    7. Stefano Bianchini & Federico Tamagni & Gabriele Pellegrino, 2016. "Innovation strategies and firm growth," Working Papers 2016/10, Institut d'Economia de Barcelona (IEB).
    8. Alex Coad & Werner Hölzl, 2012. "Firm Growth: Empirical Analysis," Chapters, in: Michael Dietrich & Jackie Krafft (ed.), Handbook on the Economics and Theory of the Firm, chapter 24, Edward Elgar Publishing.
    9. Agustí Segarra-Blasco & Mercedes Teruel & Elisenda Jové-Llopis, 2018. "High-growth firms in European countries: The role of innovation," Revista Cuadernos de Economia, Universidad Nacional de Colombia, FCE, CID, vol. 37(75), pages 637-808, January.
    10. Hyunseog Chung & Soomin Eum & Chulung Lee, 2019. "Firm Growth and R&D in the Korean Pharmaceutical Industry," Sustainability, MDPI, vol. 11(10), pages 1-19, May.
    11. Marco Capasso & Tania Treibich & Bart Verspagen, 2015. "The medium-term effect of R&D on firm growth," Small Business Economics, Springer, vol. 45(1), pages 39-62, June.
    12. Nanditha Mathew, 2017. "Drivers of firm growth: micro-evidence from Indian manufacturing," Journal of Evolutionary Economics, Springer, vol. 27(3), pages 585-611, July.
    13. Martin Falk, 2012. "Quantile estimates of the impact of R&D intensity on firm performance," Small Business Economics, Springer, vol. 39(1), pages 19-37, July.
    14. Cucculelli, Marco & Ermini, Barbara, 2012. "New product introduction and product tenure: What effects on firm growth?," Research Policy, Elsevier, vol. 41(5), pages 808-821.
    15. Di Cintio, Marco & Ghosh, Sucharita & Grassi, Emanuele, 2017. "Firm growth, R&D expenditures and exports: An empirical analysis of italian SMEs," Research Policy, Elsevier, vol. 46(4), pages 836-852.
    16. Koutroumpis, Pantelis & Leiponen, Aija & Thomas, Llewellyn D W, 2017. "The Young, the Old and the Innovative: The Impact of R&D on Firm Performance in ICT versus Other Sectors," ETLA Working Papers 51, The Research Institute of the Finnish Economy.
    17. Mariana Mazzucato & Stuart Parris, 2015. "High-growth firms in changing competitive environments: the US pharmaceutical industry (1963 to 2002)," Small Business Economics, Springer, vol. 44(1), pages 145-170, January.
    18. Joel Rabinovich, 2022. "The evolving contribution of R&D, advertising and capital expenditures for US-listed firms’ growth in sales, 1979-2018. A quantile regression analysis," Working Papers hal-03539656, HAL.
    19. Max Nathan & Anna Rosso, 2017. "Innovative events," Development Working Papers 429, Centro Studi Luca d'Agliano, University of Milano, revised 08 Apr 2019.
    20. Matthias Deschryvere, 2014. "R&D, firm growth and the role of innovation persistence: an analysis of Finnish SMEs and large firms," Small Business Economics, Springer, vol. 43(4), pages 767-785, December.

    More about this item

    Keywords

    R&D investment; Firm performance; Endogenous switching;
    All these keywords.

    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:ssa:lemwps:2017/21. 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/labssit.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.