Not that simple: unraveling contingent factors linking firm R&D investment and patenting performance

PurposeExisting research suggests a positive relationship between firms' research and development investments (RDIs) and their patenting performance (PP) according to assumptions of linear productivity and homogeneous behavior. This study unravels the RDI-PP relationship by taking a strategic view to reveal its underlying mechanisms. Design/methodology/approachWe study the effects of firms' RDI on PP in the context of China's listed firms in 16 patent-intensive industries, including the pharmaceutical, computer communication, electronic equipment and electrical machinery and equipment manufacturing industries. To test our hypotheses, we use panel data from 2010 to 2017. We apply generalized estimating equations to estimate our models. FindingsThe study finds an inverted U-shaped relationship between RDI and PP that arises from the transition of innovation portfolios and the strategic balancing of patenting costs and benefits. The study further examines two contingencies: (1) top management team (TMT) education level and (2) TMT compensation. It shows the turning point of the inverted U-shape shifts to the right when TMT education level is high; the curve flattens when TMT education level and TMT compensation are high. Originality/valueWe contribute to literature on innovation and appropriability strategy in three ways: First, we reveal the underlying mechanisms of the inverted U-shaped relationship between RDI and PP. Second, because previous research on appropriability strategies pays little attention to how innovation portfolios influence patenting decisions at the firm level, we provide evidence and insights on how the tension between exploitative and explorative innovations affects appropriability strategies. Third, we connect appropriability strategy literature with two streams of literature: corporate governance and upper-echelon theory.