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The R&D Investment–Uncertainty Relationship: Do Strategic Rivalry and Firm Size Matter?

Authors

  • Dirk Czarnitzki,

    Corresponding author
    1. Centre for R&D Monitoring (ECOOM), K.U. Leuven, Leuven, Belgium
    2. Centre for European Economic Research (ZEW), Mannheim, Germany
    • Department of Managerial Economics, Strategy and Innovation, K.U. Leuven, Leuven, Belgium
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  • Andrew A. Toole

    1. Economic Research Service, US Department of Agriculture, Washington, DC, USA
    2. Centre for European Economic Research (ZEW), Mannheim, Germany
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  • The views expressed in this article are the author's and do not necessarily represent the views of the U.S. Department of Agriculture or the Economic Research Service.

Department of Managerial Economics, Strategy and Innovation, K.U. Leuven, Leuven, Belgium. E-Mail: dirk.czarnitzki@econ.kuleuven.be

Abstract

This paper uses a real options perspective to augment a standard research and development (R&D) investment model and implement a firm-level empirical analysis to assess the practical significance of market uncertainty and its interactions with strategic rivalry and firm size. We use a measure of firm-relevant market uncertainty along with panel data and find that firms invest less in current R&D as uncertainty about market returns increases. The effect of firm-specific uncertainty on R&D investment is smaller in markets where strategic rivalry is likely to be more intense. Furthermore, holding access to financing constant, the effect of uncertainty on R&D investment is attenuated for large firms. Copyright © 2012 John Wiley & Sons, Ltd.

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