Corporate R&D activities, financing constraints, performance and diversification

This thesis proposes to enlighten several channels that favor the emergence and the outcome of creative ideas and innovation in general amongst private firms, with a particular focus on European companies. The first chapter introduces the motivations related to this research, defines the research objectives and questions addressed by the dissertation and concludes with the outline and the contributions of the thesis. The second chapter analyzes the financing constraints on R&D investments. The central question in this chapter is whether financing constraints can explain a part of the acknowledged R&D gap between Europe and the US. In order to address this question, a dataset is constructed on the basis of a compilation of R&D scoreboards. The findings of this chapter are based on a sensitivity analysis of R&D to cash flow using estimates of dynamic R&D equations. The relationship between the financing constraints on R&D and the age of the companies is analyzed in an additional set of results with parametric as well as non parametric estimations. European firms appear to be affected by financing constraints in the 2000s while this is not the case for the US companies. The age seems to affect negatively the R&D sensitivity for EU and US leading innovators, with higher sensitivities for old and low-tech EU firms than their US counterparts. The third chapter is dedicated to the measuring of the knowledge production of R&D expenditures when they are disaggregated into the following components: intramural versus extramural expenditures, research versus development expenditures, product-oriented versus process-oriented, human capital versus investments. The sources of funding and the types of subcontractors are also considered. The main question of this chapter is whether the heterogeneity of R&D affects the technology performance of the companies, as measured by patent applications. A cross-sectional Belgian R&D survey conducted over 2004-2005 is used for the purpose of the analysis. Given the high dependency of the Belgian innovation system towards the foreign MNEs, a matching process was performed between Belgian R&D and patents related to Belgian inventors in order to capture the patents filed outside Belgium but related to inventions created by firms located in Belgium (i.e. subsidiaries of foreign groups). Estimates of the elasticity of the quantity of patents with respect to the components of R&D are provided. The main question of the fourth chapter is whether the diversification strategies of the economic activities of the R&D leaders in Europe affect, positively or negatively, the performance of their R&D activities. An original approach is proposed on the basis of the analysis of the subsidiaries of EU MNEs. The sample consists of large R&D firms that represent about 80% of total European R&D. In general, the results indicate a positive impact from globalization on firms’ R&D productivity, especially in the US, while a negative impact for industrial diversification is found. The main question of the fifth chapter is whether the R&D activities that are conducted outside Europe still benefit to European growth. If so, how does the regional location of R&D centers matter in the production process of EU MNEs? The analysis is conducted on the basis of a unique sample of 637 European R&D leaders with information that is consolidated with respect to about 8000 worldwide patenting subsidiaries. The assessment of R&D internationalization is proxied by the regional repartition of the inventors of each firm. The empirical findings suggest that R&D located in Europe yields significant economic results, but a reallocation of R&D located in Europe instead of outside Europe seems to be correlated with lower R&D performances in high-tech sectors, but not in lower-tech industries. Conversely, a larger share of R&D located in the US seems to improve the economic performance of R&D activities within high-tech EU MNEs while the effect is negative for lower-tech companies. Nevertheless, the economic performance of R&D centers in Europe and US is jointly positive and significant for both regions. The sixth chapter concludes the dissertation by reviewing the main findings of the previous chapters. Policy implications are summarized and the limitations of the thesis are addressed. Finally, extensions of the scope of the analysis and ideas for future research are suggested.