Interesting findings of this study include that while larger total assets and greater physical assets are associated with higher R&D intensity, firm size has a negative relationship with R&D intensity. Also, while economic downturns have a negative impact on R&D activities, this effect can be moderated or reversed under certain conditions. The study also addresses the limitations of using patents as a universal metric for innovation and emphasizes the need for a nuanced approach in measuring innovation and interpreting its relationship with financial indicators. Overall, the paper supports the idea that innovation plays a significant role in a firm's financial performance and competitiveness.
Policymakers seeking to stimulate innovation may want to explore the paper’s findings more closely. Since total assets are correlated to R&D intensity, policies that facilitate easier access to financial resources for firms could stimulate innovation. This easier access could be achieved by expanding the availability of tax incentives for R&D investments, government grants, and subsidies specifically targeted at innovation activities. And because R&D is seen to lag during economic downturns, policies that provide additional support to firms during recessions, such as R&D-related tax breaks or increased government spending on research , may encourage continuous investment in R&D. Similarly, policies that support small and medium-sized enterprises (SMEs), such as easing capital access or providing innovation-specific funding, could be particularly effective in boosting overall industry innovation. Finally, creating an ecosystem that nurtures innovation and competitiveness requires policymakers to have a long-term perspective is important given the considerable time required for most innovation to reach the market.
Kruglov, Panteleimon and Shaw, Charles, Financial Performance and Innovation: Evidence From USA, 1998 - 2023 (March 9, 2024). Available at https://ssrn.com/abstract=4753538 or http://dx.doi.org/10.2139/ssrn.4753538