Proactive R&D management and firm growth: a punctuated equilibrium model

Mudambi, R. and Swift, T. (2011) Proactive R&D management and firm growth: a punctuated equilibrium model. Research Policy, 40 (3). pp. 429-440. ISSN 0048-7333 doi: 10.1016/j.respol.2010.10.014

Abstract/Summary

The external environment is characterized by periods of relative stability interspersed with periods of extreme change, implying that high performing firms must practice exploration and exploitation in order to survive and thrive. In this paper, we posit that R&D expenditure volatility indicates the presence of proactive R&D management, and is evidence of a firm moving from exploitation to exploration over time. This is consistent with a punctuated equilibrium model of R&D investment where shocks are induced by reactions to external turbulence. Using an unbalanced panel of almost 11,000 firm-years from 1997 to 2006, we show that greater fluctuations in the firm's R&D expenditure over time are associated with higher firm growth. Developing a contextual view of the relationship between R&D expenditure volatility and firm growth, we find that this relationship is weaker among firms with higher levels of corporate diversification and negative among smaller firms and those in slow clockspeed industries.