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Firm size and types of innovation

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  • J. M. Plehn-Dujowich

Abstract

We propose a general theory of innovation that illustrates the relative benefits of performing process versus product R&D when firm size is endogenous. A firm's size, scope, and R&D portfolio are shown to reflect the same underlying characteristic of the firm, namely manufacturing efficiency. We demonstrate that efficient firms become larger, have greater scope, and perform more of both process and product R&D. In light of decreasing returns to R&D, this implies small firms obtain more product innovations per dollar of R&D than large firms, which is consistent with evidence we present that small firms are more innovative than large firms as they obtain more patent counts and citations per dollar of R&D.

Suggested Citation

  • J. M. Plehn-Dujowich, 2009. "Firm size and types of innovation," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 18(3), pages 205-223.
    • Handle: RePEc:taf:ecinnt:v:18:y:2009:i:3:p:205-223
    DOI: 10.1080/10438590701785850
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    References listed on IDEAS

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    1. Zvi Griliches, 1984. "R&D, Patents, and Productivity," NBER Books, National Bureau of Economic Research, Inc, number gril84-1, February.
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    7. Michael Gort, 1962. "Introduction to "Diversification and Integration in American Industry"," NBER Chapters, in: Diversification and Integration in American Industry, pages 3-7, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Burak Dindaroglu, 2011. "R&D Productivity and Firm Size in Semiconductors and Pharmaceuticals: Evidence from Citation Yields," Working Papers 1101, Izmir University of Economics.
    2. Lukasz Arendt & Wojciech Grabowski, 2017. "Innovations, ICT and ICT-driven labour productivity in Poland," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 25(4), pages 723-758, October.
    3. Andriosopoulos, Dimitris & Czarnowski, Pawel & Marshall, Andrew, 2023. "Do corporate lawyers matter? Evidence from patents," Journal of Corporate Finance, Elsevier, vol. 83(C).
    4. Wang, Shuxun & Wu, Kai & Lai, Seiwai, 2022. "Acquisition for innovations? M&A intensity and intra-firm innovation reallocations," Research in International Business and Finance, Elsevier, vol. 62(C).
    5. repec:izm:wpaper:1207 is not listed on IDEAS
    6. Becker, Annette & Hottenrott, Hanna & Mukherjee, Anwesha, 2022. "Division of labor in R&D? Firm size and specialization in corporate research," Journal of Economic Behavior & Organization, Elsevier, vol. 194(C), pages 1-23.
    7. Saha, Souresh, 2014. "Firm's objective function and product and process R&D," Economic Modelling, Elsevier, vol. 36(C), pages 484-494.
    8. Nakatani, Ryota, 2021. "Total factor productivity enablers in the ICT industry: A cross-country firm-level analysis," Telecommunications Policy, Elsevier, vol. 45(9).
    9. Huang, Xiulu & Wang, Xiaoyu & Ge, Pengfei, 2024. "Selective industrial policy and innovation resource misallocation," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 124-146.
    10. Mauro Soto Rubio & Vicente Germán-Soto & Luis Gutiérrez Flores, 2023. "Patentes, tamaño de empresa y financiamiento público en México: análisis regional con modelos de datos de conteo," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 18(1), pages 1-26, Enero - M.
    11. Mahvish Aslam & Imran Shafi & Jamil Ahmed & Mirtha Silvana Garat de Marin & Emmanuel Soriano Flores & Marco Antonio Rojo Gutiérrez & Imran Ashraf, 2023. "Impact of Innovation-Oriented Human Resource on Small and Medium Enterprises’ Performance," Sustainability, MDPI, vol. 15(7), pages 1-23, April.
    12. Maria Elena Bontempi & Luca Lambertini & Giuseppe Parigi, 2024. "Exploring the innovative effort: duration models and heterogeneity," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 14(3), pages 587-656, September.
    13. Mahour Parast & Adegoke Oke & Matthew Doolin, 2025. "Investigating the Effect of Innovation Activities of Firms on Innovation Performance: Does Firm Size Matter?," Working Papers 25-04, Center for Economic Studies, U.S. Census Bureau.
    14. Ciftci, Mustafa & Cready, William M., 2011. "Scale effects of R&D as reflected in earnings and returns," Journal of Accounting and Economics, Elsevier, vol. 52(1), pages 62-80, June.

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