Ratio Working Papers,
The Ratio Institute

Abstract: In this paper we analyze whether a firm’s return to its R&D stock is affected by seller-buyer interactions. We suggest that firms that are in close contact with their customers will be relatively more sensitive to their customers’ needs, and therefore adjust their R&D activities accordingly. This, in turn, will boost sales and increase the return to R&D. To the extent that seller-buyer interactions are costly, large and productive firms will have an advantage in overcoming such costs. We test these hypotheses using a fixed effects quantile regression framework. Results suggest that large firms active in industries characterized by frequent seller-buyer interactions have a higher return to R&D than other firms.

Keywords: firm behavior; firm performance; production and organizations; firm size; diversification and scope

JEL-codes: D22; D29; L25; O32

33 pages, June 9, 2014

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