Innovation and Performance: The Contribution of Investments in R&D to Firm Profitability According to the Technological Frontier

This study analyses the influence of innovative efforts, measured by R&D investments, on the financial performance of firms, considering its position in relation to the technological frontier. Recent researches, especially Aghion & Howitt, 2009; Aghion, Akcigit, & Howitt, 2013, have demonstrated that the firm's technological position has a strong impact on the results of the applied investment, since the structure of incentives and potential opportunity costs influence the relation between the variables. For this purpose, the present study uses the frontier analysis with order-α partial frontiers, aiming to capture fluctuations of proximity to the border and its influence on the relation "R & D investment versus performance". Such approach allows different frontiers to be estimated for different quantiles, which provides a more consistent estimate of efficiency scores, which become more robust in relation to traditional problems of outliers and dimensionality. The sample of this article was made up of 2.000 firms and the data needed for the survey was extracted from the European Commission, a database covering 40 sectors in 46 countries. The results of the model suggest that the more efficient firms or the ones situated on the efficiency frontier achieve more profits from the same level of R&D investment compared with less efficient firms. This influence of proximity to the frontier emphasizes that the most efficient firms use the investments in R&D in order to obtain greater returns, what can explain that innovation is not shown uniform among firms.