Environmental Dynamism, Firm Size and the Economic Productivity of R&D

The effects of firm size on innovative activity have been extensively debated in the literature, with generally inconclusive results. This study poses a contingent framework in which environmental dynamism moderates the effects of firm size on the returns to research and development (R&D) investments. We hypothesize that dynamic environments favor small firms, as they reward organizational flexibility and promote the development of the markets for technology. Empirical evidence obtained on a sample of Spanish manufacturing firms shows that technological, but not market, dynamism negatively moderates the effects of firm size on the economic productivity of R&D, thus contributing to the success of research efforts by small firms vis-à-vis those of larger corporations.