The Effects of R&D Expenditure and Technological Spillover on Industry Revenues in Japan

Introduction

Studies on corporate research and development (R&D) are conducted from various perspectives across disciplines. For example, there are many studies on business management related to the R&D strategy in institutions or organizations, business engineering to optimize work efficiency, mathematical economics represented by game theory, and informatics related to the discovery and propagation of knowledge. As the basic purpose of corporate R&D is to increase revenue, in this study, the author interprets the effects of R&D as the extent to which R&D activities lead to financial results and regards the effects of R&D as the correspondence between costs and profits. After the 1997 Asian Currency Crisis, Japan’s economic growth declined. There is a priori judgment that the monetization of R&D is a particularly important research issue for Japanese companies.

The purpose of this study is to analyze the current state of R&D profitability in the Japanese manufacturing sector. The ultimate aim of this study is to strengthen the R&D activities of individual companies. To achieve this goal, it is necessary to understand the effects of individual R&D expenditures first and of others’ R&D investments second. Griliches (1979) stated that there are many factors contributing to increased corporate productivity, including both companies’ own R&D efforts and, more importantly, the spillover of R&D conducted by other companies. In other words, the return of a company’s R&D activities is influenced by the technological achievements of other companies as well as its own direct R&D investment, a phenomenon called “technological spillovers.” Companies can benefit from other companies’ R&D efforts in two ways. First, the quality and productivity of the company is improved through the raw materials or production equipment supplied by other companies. Second, ideas obtained by other companies through existing literature, patents, and human exchanges contribute to a company’s performance, albeit without taking the form of products.

Yamada and Nakayama (2018) analyzed the effects of internal resources on industry-based accounting information. As a common consequence of the entire Japanese manufacturing sector, R&D expenditures have not sufficiently contributed to earnings. In this study, in addition to analyzing technological spillovers between industries, which are external resources, the effects of R&D expenditures and technological spillovers on sales are determined by multiple regression analysis based on industry-specific accounting information. The analysis individually covers 11 Japanese manufacturing industrial segments over a period of 17 years (2001–2017)¹. The author focuses on whether R&D activities of individual industries, including technological spillovers, have any effect on the revenue of the industries. This is because phenomena common to the entire manufacturing sector are not necessarily reflected in individual industries. At the same time, the author examines the acceptance and supply relationships of technological spillovers among Japanese industries through a quantitative analysis of technological spillovers by industry; in doing so, the effects of technological spillovers can be better understood.

According to the “Explanation of Terms” in the Report on the Survey of R&D published by the Ministry of Internal Affairs and Communications, “R&D” refers to the systematic studies and creative efforts in science and technology that are undertaken to acquire new knowledge of materials, functions, natural phenomena, etc. as well as new applications for the storage of knowledge. Development and technical improvements in the product or production process of business enterprises’ R&D activities are included within the category, in addition to clerical and financial work related to R&D performance. Work related to quality control, routine examination for the standardization of production processes, design of machinery, and facilities for commercial production purposes beyond the process of R&D activities are not included in this understanding of R&D. “R&D expenditure” is the “total intramural expenditure on R&D, (Disbursement)”² as described in the Report on the Survey of R&D.