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Investment opportunities and R&D investments in family and nonfamily firms
Author(s) -
Miroshnychenko Ivan,
Barontini Roberto,
De Massis Alfredo
Publication year - 2020
Publication title -
randd management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.253
H-Index - 102
eISSN - 1467-9310
pISSN - 0033-6807
DOI - 10.1111/radm.12392
Subject(s) - investment (military) , business , dimension (graph theory) , sample (material) , value (mathematics) , human capital , identity (music) , set (abstract data type) , capital (architecture) , industrial organization , labour economics , monetary economics , microeconomics , finance , economics , market economy , chemistry , physics , mathematics , archaeology , chromatography , machine learning , politics , political science , computer science , pure mathematics , law , acoustics , history , programming language
The firm’s investment opportunity set (IOS) reflects the prospective growth opportunities related to physical and human capital investments. IOSs are largely firm specific, embedded in assets‐in‐place, or generated by experience curves, learning‐by‐doing, and other similar phenomena. However, the value of an IOS can be destroyed if a firm does not exercise the option to invest. In this study, we theorize that a firm’s ability to invest in R&D is conditional on the availability of a favorable IOS. We test our theoretical propositions in the European business environment using a sample of large publicly traded firms with concentrated ownership. Our findings support the notion that the IOS is a significant determinant of corporate R&D investments, but the magnitude of this effect depends on the identity of the ultimate owner. Specifically, the sensitivity of R&D investments of family‐ and state‐owned corporations is higher to favorable IOS than that of widely held corporations, suggesting these firms are more responsive to favorable IOS than others. By introducing the IOS dimension, our results have interesting implications for both theory and practice.