High growth firms, innovation and competition: the case of the US pharmaceutical industry


Innovation is key to economic growth. But firms, across sectors and regions, are highly skewed in their ability to engage with innovation, and even more skewed in their ability to translate investments in innovation into higher growth. While there was initially much attention on 'small' firms (SMEs), due to the assumption that they are more entrepreneurial and innovative, recent evidence that small firms contribute less to innovation and employment than commonly believed, has caused attention to move towards 'high growth innovative' firms (HGF). There is, however, the risk that this newly emphasized category of firms is also being 'hyped up' given how short a time period 'high growth' lasts, and how 'high growth' appears to only be important when combined with other firm specific conditions. Our paper is dedicated to exploring under what conditions high growth firms matter, in a dynamic setting over the history of the US pharmaceutical industry from 1963-2002. Following Coad and Rao (2008), we use quantile regression techniques to study the R&D-growth relationship in high growth firms compared to low growth firms. We find that the relationship is influenced by a mix of firm level characteristics including R&D intensity, R&D scale and venture capital funding. But more importantly we find that this relationship is sensitive to the changing competitive environment over the industry's history

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