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Back to Basics: Why do Firms Invest in Research?

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  • Ashish Arora
  • Sharon Belenzon
  • Lia Sheer

Abstract

If scientific knowledge is a public good, why do firms invest in research? This paper revisits this classic question with new data on patent citations to scientific publications by corporations. Using data on 4,736 firms for the period 1980-2006, we document that corporate investment in research is closely related to its use in internal invention. Specifically, firms that build on their scientific research in their inventive activity invest more in research than those that are less successful in using their research internally. Consistent with this, research that is internally used is valued more and is more productive. Our results are consistent with the view that to justify further investment in research corporate scientists need to demonstrate that their recent scientific work is useful for the core inventive activity of the sponsoring firm.

Suggested Citation

  • Ashish Arora & Sharon Belenzon & Lia Sheer, 2017. "Back to Basics: Why do Firms Invest in Research?," NBER Working Papers 23187, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:23187
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    Cited by:

    1. Max Nathan & Anna Rosso, 2017. "Innovative events," Development Working Papers 429, Centro Studi Luca d'Agliano, University of Milano, revised 08 Apr 2019.
    2. Arora, Ashish & Belenzon, Sharon & Dionisi, Bernardo, 2023. "First-mover advantage and the private value of public science," Research Policy, Elsevier, vol. 52(9).
    3. Ashish Arora & Sharon Belenzon & Andrea Patacconi & Jungkyu Suh, 2020. "The Changing Structure of American Innovation: Some Cautionary Remarks for Economic Growth," Innovation Policy and the Economy, University of Chicago Press, vol. 20(1), pages 39-93.
    4. Roberto Camerani & Daniele Rotolo & Nicola Grassano, 2018. "Do firms publish? A multi-sectoral analysis," JRC Working Papers on Corporate R&D and Innovation 2018-05, Joint Research Centre.
    5. Simeth, Markus & Wehrheim, David, 2024. "On “Innovation and institutional ownership”," Journal of Corporate Finance, Elsevier, vol. 86(C).
    6. Righi, Cesare & Cannito, Davide & Vladasel, Theodor, 2023. "Continuing patent applications at the USPTO," Research Policy, Elsevier, vol. 52(4).
    7. Watzinger, Martin & Schnitzer, Monika, 2019. "Standing on the Shoulders of Science," Rationality and Competition Discussion Paper Series 215, CRC TRR 190 Rationality and Competition.
    8. Raphael Calel, 2020. "Adopt or Innovate: Understanding Technological Responses to Cap-and-Trade," American Economic Journal: Economic Policy, American Economic Association, vol. 12(3), pages 170-201, August.
    9. James Harrigan & Ariell Reshef & Farid Toubal, 2023. "Techies and Firm Level Productivity," NBER Working Papers 31341, National Bureau of Economic Research, Inc.
    10. Yan Anthea Zhang & Zhuo Emma Chen & Yuandi Wang, 2021. "Which patents to use as loan collaterals? The role of newness of patents' external technology linkage," Strategic Management Journal, Wiley Blackwell, vol. 42(10), pages 1822-1849, October.
    11. Ana María Gómez-Aguayo & Joaquín M. Azagra-Caro & Carlos Benito-Amat, 2024. "The steady effect of knowledge co-creation with universities on business scientific impact throughout the economic cycle," Scientometrics, Springer;Akadémiai Kiadó, vol. 129(5), pages 2771-2799, May.
    12. Azagra-Caro, Joaquín M. & Tijssen, Robert J.W. & Tur, Elena M. & Yegros-Yegros, Alfredo, 2019. "University-industry scientific production and the Great Recession," Technological Forecasting and Social Change, Elsevier, vol. 139(C), pages 210-220.
    13. Mercedes Delgado & Fiona Murray, 2021. "Mapping the Regions, Organizations and Individuals That Drive Inclusion in the Innovation Economy," NBER Chapters, in: Entrepreneurship and Innovation Policy and the Economy, volume 1, pages 67-101, National Bureau of Economic Research, Inc.
    14. Matt Marx & Aaron Fuegi, 2020. "Reliance on science: Worldwide front‐page patent citations to scientific articles," Strategic Management Journal, Wiley Blackwell, vol. 41(9), pages 1572-1594, September.
    15. Ju, Xiaosheng & Jiang, Shengjun & Zhao, Qifeng, 2023. "Innovation effects of academic executives: Evidence from China," Research Policy, Elsevier, vol. 52(3).
    16. Kafouros, Mario & Aliyev, Murod & Krammer, Sorin M.S., 2021. "Do firms profit from patent litigation? The contingent roles of diversification and intangible assets," Research Policy, Elsevier, vol. 50(6).
    17. Cesare Righi & Davide Cannito & Theodor Vladasel, 2023. "Continuing patent applications at the USPTO," Economics Working Papers 1855, Department of Economics and Business, Universitat Pompeu Fabra.
    18. Lauriane Dewulf & Michele Cincera, 2018. "Academic Scientists: The Golden Opportunity For High-Tech Companies," Working Papers TIMES² 2018-030, ULB -- Universite Libre de Bruxelles.
    19. Buggenhagen, Magnus & Blind, Knut, 2022. "Development of 5G – Identifying organizations active in publishing, patenting, and standardization," Telecommunications Policy, Elsevier, vol. 46(4).
    20. Cesare Righi & Davide Cannito & Theodor Vladasel, 2023. "Continuing Patent Applications at the USPTO," Working Papers 1382, Barcelona School of Economics.
    21. Matt Marx & Aaron Fuegi, 2022. "Reliance on science by inventors: Hybrid extraction of in‐text patent‐to‐article citations," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(2), pages 369-392, April.
    22. 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.

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    More about this item

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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