Using longitudinal data of Spanish manufacturing companies, we study the dynamic, bidirectional
relationship between firm research and development (R&D) intensity and corporate diversification in
an organic growth setting. Our empirical approach accounts for the different sources of endogeneity.
Although we find a positive linear effect of R&D intensity on related diversification, the effect of related
diversification on R&D intensity assumes the form of an inverted U. Thus, the effect of related diversification
on R&D intensity is positive, but marginally decreases for moderate levels of related diversification.
Such an effect can become negative, however, for high levels of related diversification. Additionally, as a
consequence of dynamics, the effects after one year are substantially lower than the overall effects that
occur over several years.Both
authors acknowledge financial support from the Spanish Ministry
of Science and Innovation, Grants No. ECO2009-11165 and
ECO2009-10358Publicad
