FIRM PERFORMANCE: A LONGITUDINAL STUDY OF R&D, PATENTS, AND PRODUCT INNOVATION.
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Abstract
In this article, the purpose of the author is to develop and test a framework that provides new insights into the relationship between a firm's innovative activities and its performance. One of the key predictors of a firm's ability to generate innovation outputs is its commitment to research and development (R&D). R&D should also be linked to activities directed at creating new products. There are also links between a firm's inventions and its product innovations. For a firm to improve its competitive position, its innovative outputs must also have a beneficial effect on performance. We trace the R&D expenditures, patents, new product announcements, and performance of a panel of firms from 1985 through 1999. Firm expenditures on R&D each year were measured using data from COMPUSTAT. Our model suggests a more complex relationship than can be modeled using multiple regression models. Some industry differences are evident with respect to both patents and product announcement. Our results show a curvilinear relationship between R&D and patents with diminishing returns to R&D spending. The results suggest that patenting and product innovation have different effects depending on the performance metric examined.