What's good for the goose ain't good for the gander: Heterogeneous innovation capabilities and the performance effects of R&D

Alex Coad*, Nanditha Mathew, Emanuele Pugliese

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

5 Citations (Scopus)

Abstract

We investigate the effects of R&D investment on performance outcomes (sales growth and relative profitability) for Indian manufacturing firms. Previous research shows contradictory results-while some studies find a positive effect of R&D on firm performance, some find that firms investing in R&D do not perform significantly better, in some cases, even perform worse than their noninvesting counterparts. We claim that the effects of R&D on performance are often misspecified. Indeed, innovation capabilities will probably simultaneously influence the decision to invest in R&D and also R&D's expected benefits. We apply endogenous switching regression to tackle the issue of selection and censored data, and the results we observe are sharp: Firms investing in R&D would have had less growth and less relative profitability if they had not done so. Interestingly, firms that did not invest in R&D would not have benefited had they done so. We interpret this as evidence that firms need to have sufficiently developed management capabilities to be able to convert R&D investments into tangible results, and that not all firms are well positioned to benefit from R&D investment.

Original languageEnglish
Pages (from-to)621-644
Number of pages24
JournalIndustrial and Corporate Change
Volume29
Issue number3
DOIs
Publication statusPublished - 2021
Externally publishedYes

ASJC Scopus subject areas

  • Economics and Econometrics

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