Abstract
The relationship between a firm's performance and R&D spending is often imperfectly understood, despite the fact that R&D is often a cornerstone of an effective innovation strategy. Susan Holak, Mark Parry, and Michael Song extend the classic innovation-adoption paradigm developed by Rogers and propose a series of hypotheses describing variations in the relationship between the R&D/sales ratio and a firm's performance. Using data from the PIMS database and contrasting growth-stage and mature-stage firms, the authors report that firm and industry characteristics have an important bearing on the R&D-performance relationship. In addition, managers can influence the incremental effects of added R&D spending on the firm's performance by manipulating certain firm-contingent variables. Increased R&D spending can have either a positive or negative influence on gross margin under various circumstances.
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