Corporate Restructuring and R&D: A Panel Data Analysis for the Chemical Industry
Ashish Arora Heinz School of Public Policy Carnegie Mellon University Marco Ceccagnoli Heinz School of Public Policy Carnegie Mellon University Marco Da Rin Dipartimento ‘G. Prato’(Università di Torino) and IGIER
Financialsupport from the European Commission for the project `From Science to Products: A green Paper on Innovation in the Chemical Industry' (SOE1-CT97-1059) is gratefully acknowledged. We thank other participants in the project for useful comments. Address correspondence to: Ashish Arora or Marco Ceccagnoli, Heinz School of Public Policy, Carnegie Mellon University, Pittsburgh (PA)., 5000 Forbes Ave,Pittsburgh PA 15213-3890, firstname.lastname@example.org, email@example.com, or to Marco Da Rin, IGIER, via Salasco 5, 20136 Milano (Italy). Phone (39-02) 5836.3379, Fax (39-02) 5836.3302, E-mail: firstname.lastname@example.org.
We contribute a novel approach to the existing literature on the effects of restructuring on R&D investment by focussing on a single industry, chemicals. The chemicalindustry is very research intensive and has experienced thorough restructuring since the early 1980s. By focussing on a single industry we are able to identify the technological and R&D features of its segments. This is important, since there is evidence that restructuring affects R&D differently in businesses with different technological features. However, no study so far has provided a systematicinquiry into this link. Using a panel of 535 European, American, and Japanese firms for the years 1987-1997 we find restructuring to be an important component in the observed changes in R&D intensity. We show that restructuring affects R&D both through changes in size and through changes in the composition of business portfolios, and that these effects differ across industry segments.
1.Introduction Investment in research and development (R&D) is as an important source of long-term growth for industrial economies, and the economics of R&D is an intensely researched topic, see Tirole (1988) for a theoretical survey and Cohen (1995) for a recent empirical survey. Much attention has gone into the determinants of the R&D investment decision, both theoretically and empirically. However, inmature economies, firms and industries increasingly evolve through restructuring. Restructuring at the firm level entails changes in the composition of both capital and labor, and in particular the divestiture and acquisition of productive assets. Restructuring at the level of the industry entails the entry and exit of firms through takeovers, mergers and acquisitions, i.e. sales and purchases ofwhole businesses. It is then important to understand what effect restructuring has on R&D, but the topic has received relatively little attention so far. In this paper we provide a study of firm-level restructuring which sheds new light on how firms change their R&D investment as a result of changes in their business portfolios. In the late 1980s, a number of empirical studies have analyzed on theeffects of restructuring on R&D.1 These efforts were motivated by the suspicion that the increased takeover activity among U.S. firms in the early 1980s might have induced ‘managerial myopia’ (Stein (1988)), and thus a decrease in long-term investments such as R&D. The brunt of this exercise was done by Bronwyn Hall (1988, 1990). Using information on U.S. listed manufacturing companies, sheexamined the determinants of acquisitions, making some important points.2 First, acquisitions by public companies do not result in any systematically significant decline in R&D spending, nor there is any significant difference between firms actively restructuring through acquisitions and inactive firms. Moreover, the difference in R&D intensity—defined as the ratio of R&D to sales— between acquiring...
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