Back to Basics: Why Do Firms Invest in Research?

63 Pages Posted: 21 Feb 2017

See all articles by Ashish Arora

Ashish Arora

Duke University - Fuqua School of Business; National Bureau of Economics Research; Duke Innovation & Entrepreneurship Initiative

Sharon Belenzon

Duke University; NBER; Duke Innovation & Entrepreneurship Initiative

Lia Sheer

Duke University - Fuqua School of Business

Date Written: February 2017

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

Arora, Ashish and Belenzon, Sharon and Sheer, Lia, Back to Basics: Why Do Firms Invest in Research? (February 2017). NBER Working Paper No. w23187, Available at SSRN: https://ssrn.com/abstract=2920404

Ashish Arora (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

National Bureau of Economics Research

1050 Massachusetts Avenue
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Duke Innovation & Entrepreneurship Initiative ( email )

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Sharon Belenzon

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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(1) 617 588 1484 (Phone)

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Lia Sheer

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

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