AbstracThis study analysed the effect of R&D subsidies on strategic decisions taken by firms when faced by innovation. The traditional approach of evaluating the impact of these subsidies on the net figure of R&D expenditures does not enable us to establish how public financing influences decisions involving technological knowledge generation, nor the economic returns which could be derived from this process. The study analyses these effects taking into consideration the size of the firm, since it is a widely used variable in designing innovation policies. The study revealed that public funding, regardless of size, mainly stimulated investments aimed at gaining knowledge within the firm's technological domain, while it did not expand the technological knowledge frontier. The findings also show that subsidies only enhance the generation of incremental innovations in the case of small firms. The study concludes that the present approach to subsidies allocation is permitting the continuity of a certain strategic behaviour which specialises in leading the firm towards a quest for immediate results rather than constructing a sustainable competitive advantage.

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This study has analyzed the effect of cooperation with customers on firms’ innovation activities. This issue is particularly novel and important as customers provide information that will be very useful to generate new products and to make the innovation process more efficient. This paper makes important contributions to the literature by analyzing how the cooperation with customers affected the creation of technological knowledge and the economic returns derived from such knowledge. Results have shown that firms cooperating with customers increased investments geared toward expanding the technological knowledge base within the firm's technological domain yet managed to reduce investments oriented to extend the frontier of technological knowledge, at least in the short term. It was also observed, that this cooperation had positive effects on firms’ economic returns derived from the sales of products new for the market allowing companies to maintain a competitive advantage over their rivals.

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We analyzed the effects of R&D cooperation with users and the intensity/continuity of such cooperation on firms' innovation output—whether radical or incremental. We also examined the moderating effect of firm size on these relationships. Results show that cooperation with users favours the development of both radical and incremental product innovations. In addition, we found that the higher the intensity/continuity of the relationship with users, the more likely radical innovations are to develop when compared with incremental innovations. We note that the positive effect of cooperation on the development of innovation is especially significant for small firms. Copyright © 2015 ASAC. Published by John Wiley & Sons, Ltd.