R&D Productivity and Firm Size in Semiconductors and Pharmaceuticals: Evidence from Citation Yields

R&D Productivity and Firm Size in Semiconductors and Pharmaceuticals: Evidence from Citation Yields

Burak Dindaroglu (Izmir University of Economics, Turkey)
DOI: 10.4018/978-1-4666-1978-4.ch006
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Abstract

Using firm level panel data from the U.S., the authors explore the relationship between firm size and R&D productivity for two important and R&D-intensive industries: Semiconductors and Pharmaceuticals. They employ two measures of a firm’s R&D performance: the number of citations received per patented innovation, and the number of citations received per dollar of R&D expenditures. The former is a measure of the average quality of a firm’s patents, and the latter is a measure of total R&D output obtained per dollar of investments. The authors find that the average quality of patents (citations received per patent) falls with firm size in Pharmaceuticals, but there is no relationship between patent quality and firm size in Semiconductors. Citations received per R&D dollar decrease with size in both industries, which is due to the well-documented negative relationship between patents per R&D and firm size.
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Background

The relationship between firm size and R&D performance is among the most intensely debated questions in the economics of innovation. R&D performance is traditionally measured by patents (or patents per R&D dollar), or innovation counts. While there are conflicting results, the literature at large does not support the Schumpeterian hypothesis, and often finds evidence on the contrary. In an influential paper, Scherer (1965) studied the relationship between patenting and firm size for the 1955 cross section of the largest firms in U.S. He found that the number of patents increased less than proportionally with firm size for most of the sample, with the exception of a small number of very large firms. Bound et al. (1984) found that smaller firms obtained a larger number of patents per dollar of R&D expenditures in a 1976 cross section of U.S. manufacturing firms. Similar results have been found by Johannisson and Lindstrom (1971) in Swedish, and by Schwalbach and Zimmerman (1991) in German manufacturing. Therefore, such results are not confined to the U.S.

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