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Why don't all young firms invest in R&D?

Abstract

This article aims to analyze the different impacts that some factors may exert on the probability that a small young firm invests intensively in R&D. Recently, an increasing amount of the literature makes reference to the vital role played by a small number of young firms in generating jobs and increasing efficiency levels. However, not all new firms invest in R&D. Departing from the definition of Young Innovative Companies (YICs, firms younger than 6 years old, fewer than 250 employees and with more than 15 % of their revenues invested in R&D activities), and with an extensive sample of the Spanish Community Innovation Survey between 2004 and 2010, we try to determine: (1) those factors that cause firms to become YICs (innovative young small firms) or Young Non-Innovative Companies (YNICs, moderately innovative young small firms), and (2) what is the difference in the impact of those factors between YICs and YNICs. Our results show that factors such as initial innovation capacity and cooperation in R&D projects enhance the probability of becoming a YIC. Nevertheless, factors such as export potential and market uncertainty may influence the decision to invest moderately and become a YNIC.

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Notes

  1. For instance, empirical evidence from the photolithographic equipment industry confirms that for incremental innovations, incumbents spend significantly more on R&D; while for radical innovations entrants are more successful (Henderson 1993).

  2. Also there some interlinkages may appear between these factors. For instance, skilled workers are more likely to ‘absorb’ knowledge and consequently to reinforce absorptive capacity (Cohen and Levinthal, 1990).

  3. Recent evidence may be found in Helmers and Rogers (2010) who find that patenting increases the likelihood of survival in some sectors.

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Acknowledgments

The authors are grateful for the financial support of the Consolidated Group of Research 2009-SGR-907. Agustí Segarra and Mercedes Teruel acknowledge the support of the Xarxa de Referència en Economia Aplicada. We are all grateful to Verònica Gombau for her research support. The usual disclaimer applies.

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Correspondence to Agustí Segarra.

Appendix

Appendix

See Table 5.

Table 5 Matrix of Pearson correlation

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Audretsch, D.B., Segarra, A. & Teruel, M. Why don't all young firms invest in R&D?. Small Bus Econ 43, 751–766 (2014). https://doi.org/10.1007/s11187-014-9561-9

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  • DOI: https://doi.org/10.1007/s11187-014-9561-9

Keywords

  • Innovation
  • Policy
  • YICs

JEL Classifications

  • O31
  • D21
  • L26