Relation of Firm Size to R&D Productivity

Abstract

Many studies have shown that small firms generate more patents per R&D dollar than large firms. Does this mean that small firms are more efficient innovators than large firms? In this paper we exploit a unique data set to reexamine the firm size-innovation relationship.Because firm-reported R&D expenditures may be a biased measure of R&D activities due to under-reporting by small firms, we use the number of inventors in the firm’s employ as a measure of R&D inputs. We focus on the pharmaceutical and semiconductor industries, two industries that are prolific generators of homogenous innovations. As has been found elsewhere in the literature, we find that patents per R&D dollar decline with firm size for_x000D_ both industries. This contrasts with the relationship between patents per inventor and firm_x000D_ size. The average number of patents per inventor increases with size in the semiconductor_x000D_ industry. In the pharmaceutical industry, we find no relationship between the number of patents produced per inventor and firm size.