R&D intensity and firm performance-sectoral differences

This paper investigates the relation of research and development intensity to fine performance. We believe that this relation is strongly sector-related, as the logic of innovation differs radically between different industries and apply the Pavitt taxonomy to classify different industries into more homogenous sectors. We use a large data set of public companies worldwide over the 1996-2005 period. An interesting question is the delay between an R&D investment and its results. We assume that this lag is dependent on the technological environment (technology regime, uncertainty, intensity) and hence differs between industry categories. There is also reason to believe that lag structures are different depending on the performance measure used. The effects on growth are expected to have a shorter time lag when compared to profitability measures. Our results imply that sectoral differences do exist in firm-level R&D intensity as such, with science-based industries having the highest R&D intensity. Sectoral differences are also evidential when estimating the time lag effect between R&D expenditures and performance of the firm.