DP16592 The Rise of Scientific Research in Corporate America

Author(s): Ashish Arora, Sharon Belenzon, Konstantin Kosenko, Jungkyu Suh, Yishay Yafeh
Publication Date: September 2021
Date Revised: May 2022
Keyword(s): Corporate Science, Innovation, Institutional Voids, US Economic History
JEL(s): L2, N12, O3, O31, O32
Programme Areas: Industrial Organization, Economic History
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16592

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 1900 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, while facing an underdeveloped academic research system in the United States: In line with this conjecture, we find that firms close to the technological frontier, operating in sectors where American universities were relatively underdeveloped, were more likely to initiate scientific research in response to rising scientific opportunities. We also find that firms that invested in scientific research were large, diversified and operated in concentrated industries, i.e., were able to capture significant rents from the provision of this public good. Indeed, corporate research was positively correlated with novel and valuable patents, and with high market-to-book ratios.