The Role of Time in Assessing the Economic Effects of R&D

Abstract

This study investigates the impacts of R&D on firm performance. It extends previous research by constructing alternative stocks of R&D‐Capital that take into account that time plays an important role in assessing the pay‐off of industrial research. The results show that even when we employed R&D‐Capitals that placed more emphasis on the industrial research that had been undertaken 7 years ago, the effects of R&D were very (statistically) significant and relatively high, thereby suggesting that the life of R&D (on average) tends to be long. The results however, vary across organizations depending on both firm size and the technological opportunities that a company faces. It appears that the depreciation rate of R&D investments is higher in the case of technologically sophisticated firms. In contrast, strategic investments in industrial research generate a relatively constant effect on the performance of other firms, supporting the notion that the corresponding returns for such firms decay slowly.

Keywords:

• Research and development (R&D)
• time lag
• performance
• innovation

Acknowledgements

The financial support of the UK Economic and Social Research Council (ESRC) is gratefully acknowledged. The authors are also grateful to Paul Stoneman, John Sharp and John Mingers for their comments on previous versions of this manuscript. The authors would also like to thank Mark Lorenzen, Keld Laursen and three anonymous referees for their insightful suggestions.

Notes

1. We would like to thank an anonymous referee for his/her suggestion.