The Rise of Scientific Research in Corporate America
Corporate science in America emerged in the interwar period, as some companies set up state-of-the-art corporate laboratories, hired trained scientists, and embarked upon basic research of the kind we would associate today with academic institutions. Using a newly assembled dataset on U.S. companies between 1926 and 1940 combining information on corporate ownership, organization, research and innovation, we attempt to explain the rise of corporate research. We argue that it was driven by companies trying to take advantage of opportunities for innovation made possible by scientific advances and an underdeveloped academic research system in the United States. Measuring field-specific scientific backwardness in several different ways, we find that large firms, business group affiliated firms, and firms close to the technological frontier were more likely to initiate scientific research. We also find that companies in monopolistic or concentrated industries were more likely to engage in basic research. Corporate research was positively correlated with novel and valuable patents, and with market-to-book ratios. For companies choosing to do so, investment in corporate research seems to have paid off. The results shed light on the link between corporate organization, market structure and corporate science.
We thank seminar participants at Boston University, the ASSA 2021 annual meeting, Strategy Science Conference and Wharton Technology and Innovation Conference, as well as Tim Simcoe, Bhaven Sampat and Tarun Khanna for helpful comments and suggestions. We thank Gioia Blayer for excellent research assistance. All remaining errors are our own. Arora, Belenzon and Suh acknowledge support from the Fuqua School of Business, Duke University. Belenzon and Yafeh gratefully acknowledge financial support from the Israel Science Foundation, Grant No. 963-2020. Kosenko is grateful for support from the Bank of Israel. Yafeh also acknowledges financial support from the Krueger Center at the School of Business Administration of the Hebrew Univeresity. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research or the Bank of Israel.
Israel Science Foundation: ``Corporate Ownership, Corporate Structure and Corporate Science: Evidence from Corporate R&D in America in the Twentieth Century'' (grant #963/2020), Collaborator (with Yishay Yafeh, PI) 2020