Reconciling the Firm Size and Innovation Puzzle

We investigate the effect of rising labour costs on induced technological change in China's secondary industry. Building on insights developed in a rich literature, we propose a model linking changes in labour productivity to changes in labour costs and the predetermined availability of physical capital. Importantly, we derive testable hypotheses to distinguish induced innovation from standard substitution of capital for labour under fixed technology. Our empirical results support the hypothesis that rising wages have induced labour-saving innovation in China, at least in the decade of the 1990s, but less so or not at all after the middle of the next decade.

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“…Nelson 1959). Knott and Vieregger (2020) show that both R&D investment and R&D productivity increase with firm size.…”

Section: Empirical Results: Tests With Asie Datamentioning

confidence: 95%

Induced innovation: evidence from China’s secondary industry

et al. 2021

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“…7. According to Knott and Vieregger (2020), RQ is derived from random coefficients estimation of a log-form production function using seven-year windows of firm financial data (Knott, 2008):…”

Section: Discussionmentioning

confidence: 99%

“…RQ reflects the percentage rise in revenue resulting from a 1% increase in R&D, assuming all other inputs and their elasticities remain unchanged. As such, RQ is the counterpart at the firm level of the most common method used by economists to estimate returns to R&D at the industry level (Hall et al , 2010; Knott and Vieregger, 2020). This distinctive measure of innovation efficiency, RQ, has gained traction in the literature lately (Knott, 2008; Cooper et al , 2015; Cremers et al , 2017; Harris et al , 2019; Chan et al , 2020; Hasan et al , 2020; Vairawan and Zhang, 2020; Iyer et al , 2020).…”

Section: Introductionmentioning

confidence: 99%

Estimating the effect of board independence on innovation efficiency using research quotient: a quasi-natural experiment

Chatjuthamard

Treepongkaruna

Jiraporn

et al. 2023

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Purpose Exploiting a novel measure of innovation, the authors investigate whether independent directors improve innovation efficiency. This novel measure of innovation captures the extent to which the firm generates revenue from its research & development and is, therefore, more economically meaningful. The authors also use a text-based measure of innovation. Design/methodology/approach The authors rely on a quasi-natural experiment based on the passage of the Sarbanes-Oxley Act of 2002 that compelled certain firms to raise board independence. The difference-in-difference analysis is far less vulnerable to endogeneity and is more likely to show a causal influence, rather than a mere association. Findings The results show that more independent directors improve innovation efficiency significantly. Specifically, firms forced to raise board independence experienced a much higher increase in innovation than those not required to change their board composition. The authors also explore another novel measure of innovation, a text-based metric of innovation. Originality/value The research is original in several ways. First, the authors take advantage of an exogenous regulatory shock as a quasi-natural experiment. This approach is far less susceptible to endogeneity. Second, the authors use a novel measure of innovation efficiency, i.e. research quotient, which is more economically meaningful. Finally, the authors use a unique measure of innovation derived from powerful textual analysis.

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“…Conversely, enterprises with limited resources must exercise greater caution and control when engaging in innovation activities due to their higher costs and risks [ 16 ]. As a result, the scale of enterprises plays a pivotal role in promoting economic growth, which is an endogenous process that relies on innovation and efficiency improvements [ 17 ]. The organic growth of large-scale enterprises has resulted in heightened competitiveness within market competition while simultaneously fortifying the microfoundations for sustainable growth.…”

Section: Structure Of the Index System For The Competitiveness Of Lis...mentioning

confidence: 99%