Innovation investment, competitiveness, and performance in industrial firms

Abstract

Intangible assets and research and development (R&D) expenditure are essential instruments in a firm's competitive productivity and profitability strategy. The relationship between productivity, tangible and intangible investments, and R&D expenditure has given rise to much analysis concerning the importance of the role played by intangible investment in the achievement of higher competitiveness. Using the Spanish database of the Fundacion Empresa Publica-Ministerio Industria (FUNEP) for the period 1991–2001, with an average of 1,800 firms per year taken from 20 industries and classified in six sectoral groups, we compare the possible relationship of the former variables with firms' profitability and productivity. The empirical results obtained show the importance of tangible investments and unit labor costs for achieving high productivity levels. R&D expenditure and intangible capital are shown to be complementary variables of the aforementioned aspects that have a delayed effect on the productivity and profitability of Spanish industries. The relevance of the prior variables differs according to whether we are referring to industrial sectors characterized by important economies of scale, intensive in capital or labor. © 2006 Wiley Periodicals, Inc.