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Innovation, Entrepreneurship, and Technological Change$
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Albert N. Link and Donald S. Siegel

Print publication date: 2007

Print ISBN-13: 9780199268825

Published to Oxford Scholarship Online: October 2011

DOI: 10.1093/acprof:oso/9780199268825.001.0001

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R&D and firm performance

R&D and firm performance

(p.36) 4 R&D and firm performance
Innovation, Entrepreneurship, and Technological Change

Albert N. Link

Donald S. Siegel

Oxford University Press

As discussed in Chapter 3, investments in R&D are positively related to total factor productivity (TFP) or productivity growth. Stated differently, empirical studies have consistently found a positive statistical relationship between numerous proxies for innovation (e.g., R&D employment, R&D expenditures, and patents) and indicators of performance (e.g., accounting profits, stock prices, and productivity). This statistical finding appears to hold both over various levels of aggregation (plant, firm, industry, and country levels) and over alternative econometric specifications (production, cost, and profit function). This chapter expands upon this statistical finding in two ways. First, it discusses the nature of R&D activity. It then reviews in detail the extant literature on R&D and firm performance. These extensions are critical because many of the studies in the literature demonstrate that the impact of R&D on firm performance depends on the type of R&D that is conducted or the source of R&D funding. That is, it is critical to analyze the various components of R&D, in order to accurately assess firm-level returns to R&D, as well as the impact of innovative activity on society.

Keywords:   R&D, research and development, investment, productivity growth, company performance

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