Research and development spending and technical efficiency: evidence from biotechnology and pharmaceutical sector

Kevin Grant* (Corresponding Author), Roman Matousek, Martin Meyer, Nickolaos G. Tzeremes

*Corresponding author for this work

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

Set within the expenditure context of the global financial crisis (GFC), this paper explores how the research and development (RD) expenditures of biotechnology and pharmaceutical companies affect their technical efficiency levels. A balanced panel of 149 US firms operating in the biotechnology and pharmaceutical sector (covering the period 2000?2017) was employed. Output-oriented partial frontier measures were used to measure the effect of RD expenditure on firms? technical efficiency levels. Findings suggest that company efficiency is an important contributor on the effects of RD on productivity and efficiency. Result suggests that a relationship between technical efficiency and RD expenditure exhibits a ?U?-shape relationship. The estimated efficiency of biotechnology firms is higher compared to pharmaceutical firms driven by their higher RD expenditure levels. We demonstrate that RD expenditures are essential for firm efficiency. We posit that a threshold level for achieving optimal efficiency levels exist, which can be used to inform managerial and policy-making decisions at the firm level.
Original languageEnglish
JournalInternational Journal of Production Research
Early online date30 Sep 2019
DOIs
Publication statusE-pub ahead of print - 30 Sep 2019

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Keywords

  • RD efficiency
  • technology
  • innovation
  • data envelopment analysis
  • US biotechnology and pharmaceutical firms
  • R&D efficiency
  • 2 FACES
  • MANAGEMENT
  • KNOWLEDGE SPILLOVERS
  • PERFORMANCE
  • FIRMS
  • NONPARAMETRIC FRONTIER MODELS
  • EXPENDITURES
  • RADICAL INNOVATION
  • PRODUCTIVITY GROWTH

ASJC Scopus subject areas

  • Industrial and Manufacturing Engineering
  • Strategy and Management
  • Management Science and Operations Research

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