Melbourne Institute Working Paper Series Database (1984 - 2010)

Melbourne Institute Working Paper No. 13/2009

What Governs Firm-Level R&D: Internal or External Factors?

by

William Griffiths and Elizabeth Webster

Date: May 2009

Abstract: Two parallel streams of research investigating the determinants of corporate R&D exist: one from economics and the other from management. The economists variables tend to reflect the firms external environment while the explanatory variables used by management scientists are commonly internal to the firm. This paper combines both approaches to test for the relative importance of each type of factor using firm-level data on large Australian companies from 1990 to 2005. Our evidence suggests that most of a firms R&D activity can be explained by time-invariant factors which we believe relate to internal and specific characteristics such as the firms managerial style, competitive strategy and how it communicates with employees. Of the remaining time-varying portion, we find that past profits, the rate of growth of the industry and the level of R&D activity over the firms industry is pertinent. These results are suggestive since we cannot clearly identify the extent to which the firms internal behaviour is conditioned by its external environment.

 

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