Corporate R&D and Firm Efficiency: Evidence from Europe’s Top R&D Investors

31 Pages Posted: 28 Dec 2009

See all articles by Subal C. Kumbhakar

Subal C. Kumbhakar

State University of New York (SUNY) at Binghamton - Department of Economics

Raquel Ortega-Argilés

University of Birmingham - Birmingham Business School, City REDI institute ; University of Groningen - Faculty of Economics and Business

Lesley Potters

European Union - European Commission; Utrecht University - School of Economics

Marco Vivarelli

Universita Cattolica del Sacro Cuore, Milano; IZA Institute of Labor Economics

Peter Voigt

affiliation not provided to SSRN

Date Written: December 2009

Abstract

The main objective of this study is to investigate the impact of corporate R&D activities on firms' performance, measured by labour productivity. To this end, the stochastic frontier technique is applied, basing the analysis on a unique unbalanced longitudinal dataset consisting of 532 top European R&D investors over the period 2000–2005. R&D stocks are considered as pivotal input in order to control for their particular contribution to firm-level efficiency. Conceptually, the study quantifies the technical inefficiency of a given company and tests empirically whether R&D activities could explain the distance from the efficient boundary of the production possibility set, i.e. the production frontier. From a policy perspective, the results of this study suggest that – if the aim is to leverage companies' productivity – emphasis should be put on supporting corporate R&D in high-tech sectors and, to some extent, in medium-tech sectors. By contrast, supporting corporate R&D in the low-tech sector turns out to have a minor effect. Instead, encouraging investment in fixed assets appears vital for the productivity of low-tech industries. However, with regard to firms' technical efficiency, R&D matters for all industries (unlike capital intensity). Hence, the allocation of support for corporate R&D seems to be as important as its overall increase and an 'erga omnes' approach across all sectors appears inappropriate.

Keywords: corporate R&D, productivity, technical efficiency, stochastic frontier analysis

JEL Classification: L2, O3

Suggested Citation

Kumbhakar, Subal C. and Ortega-Argilés, Raquel and Potters, Lesley and Vivarelli, Marco and Voigt, Peter, Corporate R&D and Firm Efficiency: Evidence from Europe’s Top R&D Investors (December 2009). IZA Discussion Paper No. 4657. Available at SSRN: https://ssrn.com/abstract=1528592

Subal C. Kumbhakar (Contact Author)

State University of New York (SUNY) at Binghamton - Department of Economics ( email )

Binghamton, NY 13902-6000
United States

Raquel Ortega-Argilés

University of Birmingham - Birmingham Business School, City REDI institute ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

Lesley Potters

European Union - European Commission ( email )

Rue de la Loi 200
Brussels, B-1049
Belgium

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands

Marco Vivarelli

Universita Cattolica del Sacro Cuore, Milano ( email )

Largo Gemelli 1
Milano, 20123
Italy

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Peter Voigt

affiliation not provided to SSRN ( email )

No Address Available

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