R&D or R vs. D? Firm Innovation Strategy and Equity Ownership

30 Pages Posted: 5 Dec 2019

See all articles by James Driver

James Driver

Texas A&M University - Department of Finance

Adam C. Kolasinski

Texas A&M University - Department of Finance

Jared R. Stanfield

University of Oklahoma; Financial Research Network (FIRN)

Date Written: November 18, 2019

Abstract

We analyze a unique dataset that separately reports research and development expenditures for a large panel of public and private firms. Definitions of “research” and “development” in this dataset, respectively, correspond to definitions of knowledge “exploration” and “exploitation” in the innovation theory literature. We can thus test theories of how equity ownership status relates to innovation strategy. We find that public firms have greater research intensity than private firms, inconsistent with theories asserting private ownership is more conducive to exploration. We also find public firms invest more intensely in innovation of all sorts. These results suggest relaxed financing constraints enjoyed by public firms, as well as their diversified shareholder bases, make them more conducive to investing in all types of innovation. Reconciling several seemingly conflicting results in prior research, we find private-equity-owned firms, though not less innovative overall than other private firms, skew their innovation strategies toward development and away from research.

Keywords: research, development, innovation, private equity, ownership

JEL Classification: G31, G32, G34, G23

Suggested Citation

Driver, James and Kolasinski, Adam C. and Stanfield, Jared R., R&D or R vs. D? Firm Innovation Strategy and Equity Ownership (November 18, 2019). Available at SSRN: https://ssrn.com/abstract=3489616 or http://dx.doi.org/10.2139/ssrn.3489616

James Driver

Texas A&M University - Department of Finance ( email )

360 Wehner
College Station, TX 77843-4218
United States

Adam C. Kolasinski

Texas A&M University - Department of Finance ( email )

360 Wehner
College Station, TX 77843-4218
United States

Jared R. Stanfield (Contact Author)

University of Oklahoma ( email )

Norman, OK 73019
United States

HOME PAGE: http://jaredstanfield.com

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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