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

Citation

Grant K, Matousek R, Meyer M & Tzeremes NG (2020) Research and development spending and technical efficiency: evidence from biotechnology and pharmaceutical sector. International Journal of Production Research, 58 (20), pp. 6170-6184. https://doi.org/10.1080/00207543.2019.1671623

Abstract
Set within the expenditure context of the global financial crisis (GFC), this paper explores how the research and development (R&D) 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 R&D expenditure on firms’ technical efficiency levels. Findings suggest that company efficiency is an important contributor on the effects of R&D on productivity and efficiency. Result suggests that a relationship between technical efficiency and R&D expenditure exhibits a ‘U’-shape relationship. The estimated efficiency of biotechnology firms is higher compared to pharmaceutical firms driven by their higher R&D expenditure levels. We demonstrate that R&D 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.

Keywords
R&D efficiency; technology; innovation; data envelopment analysis; US biotechnology and pharmaceutical firms

Journal
International Journal of Production Research: Volume 58, Issue 20

People

Professor Kevin Grant

Dean of Stirling Management School