Corporate R&D and Firm Effi ciency:Evidence from Europe’s Top R&D Investors

The main objective of this study is to investigate the impact of corporate R&D activities onfirms’ performance, measured by labour productivity. To this end, the stochastic frontiertechnique is applied, basing the analysis on a unique unbalanced longitudinal datasetconsisting of 532 top European R&D investors over the period 2000–2005. R&D stocks areconsidered as pivotal input in order to control for their particular contribution to firm-levelefficiency. Conceptually, the study quantifies the technical inefficiency of a given companyand tests empirically whether R&D activities could explain the distance from the efficientboundary of the production possibility set, i.e. the production frontier. From a policyperspective, the results of this study suggest that – if the aim is to leverage companies’productivity – emphasis should be put on supporting corporate R&D in high-tech sectors and,to some extent, in medium-tech sectors. By contrast, supporting corporate R&D in the lowtechsector turns out to have a minor effect. Instead, encouraging investment in fixed assetsappears vital for the productivity of low-tech industries. However, with regard to firms’technical efficiency, R&D matters for all industries (unlike capital intensity). Hence, theallocation of support for corporate R&D seems to be as important as its overall increase andan ‘erga omnes’ approach across all sectors appears inappropriate....