Publication: Corporate diversification and R&D intensity dynamics
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2007-12
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Abstract
We study the dynamic bidirectional relationship between firm R&D intensity and corporate
diversification, using longitudinal data of Spanish manufacturing companies. Our empirical approach
takes into account the censored nature of the dependent variables and the existence of firm-specific
unobserved heterogeneity. Whereas we find a positive linear effect of R&D intensity on related
diversification, the evidence about the effect of related diversification on R&D intensity takes the form of
an inverted U. Hence, the effect of related diversification on R&D intensity is positive but marginally
decreasing for moderate levels of related diversification, but such effect can turn out negative for high
levels of related diversification. Additionally, the consequences of the dynamic relation are that the
effects are substantially larger in the long-run than in the short-run.
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Keywords
Diversification, R&D Intensity, Dynamics, Organic growth, Endogeneity, Panel data