R&D productivity and firm size: a nonlinear examination

Controversial arguments abound in the previous research on the relationship between R&D output and firm size, with these arguments implying the existence of a nonlinear relationship between the two. However, such a relationship has never been seriously examined. This study therefore aims to examine the nonlinear relationship between R&D productivity and firm size using a longitudinal dataset. In this article, the Taiwanese electronics industry is taken as the analytical sample since this industry has been viewed as the most R&D-intensive and prominent 'high-tech sector'. Another, more practical consideration for choosing this sector is the relative abundance of data available for variables for a longitudinal investigation. In contrast to the prior research, this study measures R&D productivity as R&D output elasticity, rather than patent counts or the ratio of patents to R&D expenditure, and treats firm size as a moderator rather than an independent variable. In addition, in estimating R&D output elasticity, the rate of obsolescence of R&D is also considered in this study. The empirical results show that there is an approximating 'U-type' relationship between R&D productivity and firm size, a finding which implies that both large and small firms ha,,e higher competitive advantage, in terms of R&D productivity, than moderate sized firms. The findings neither support that greater size offers no advantage in terms of R&D output nor completely confirm the Schumpeterian hypothesis. This study also presents evidence on the importance of R&D as a determinant of the growth of firm total factor productivity. Obviously, this article contributes a starting point in examining a nonlinear relationship between innovative output and firm size. (c) 2004 Published by Elsevier Ltd.