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

38 Pages Posted: 5 Dec 2019 Last revised: 28 Jul 2020

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: July 27, 2020

Abstract

We analyze a unique dataset that separately reports research and development expenditures for a large panel of public and private firms. We establish new empirical facts about how equity ownership status relates to innovation strategy and then compare these facts to equilibrium outcomes predicted by theory. We find public firms have greater research intensity than private firms, inconsistent with theories predicting an equilibrium wherein private firms conduct relatively more exploratory innovation. We also find public firms invest more intensely in innovation of all sorts. These results suggest more innovative firms select into public status, which relaxes financing constraints and provides a more diversified shareholder base more tolerant of high idiosyncratic risk. Reconciling several seemingly conflicting results in prior research, we find private equity held firms, though equally innovative as other private firms, skew their 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 (July 27, 2020). 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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