Performance evaluation of R&D active firms

Abstract

This study focuses on the allocation of R&D resources in R&D active firms. We utilize the input oriented constant (CRS) and variable (VRS) returns to scale data efficiency analysis models to evaluate the efficiency of firms. Scale efficiency and the respective types of returns to scale have been examined by using DEA models with ratio inputs and outputs. We pay attention to the global frontier and the firm's own sector and size frontiers. We highlight the sources of inefficiency and suggestions are proposed to improve efficiencies of R&D resources allocation. The analysis is based on a representative set of (quasi-) permanent R&D active firms in Belgium. We consider R&D related inputs in the year 2009 and include firm performance in terms of turnover and net added value per employee in a four year time span. The paper highlights that on average, R&D active firms suffer from both technical inefficiency and scale size problems since the average of the CRS and the VRS efficiency are low, and also the average of scale efficiency is modest. According to firm size, small-sized firms suffer from scale and technical inefficiency. Medium-sized firms endure scale inefficiency rather than technical inefficiency. Large firms present a higher average scale efficiency and technical efficiency. According to sector of activity, firms in specialized supplier industries tend to outperform other firms in terms of average scale efficiency and average technical efficiency. Firms in science based industries are found to underperform on average in terms of VRS and scale efficiency.