Process (R&D) Innovation: Cost Reduction & Value Added in Innovative Firms

This study focuses on a firm\u27s ability to undertake process and innovation in decreasing cost of production and increasing productivity. The theoretical framework is sourced from the microeconomic concepts of Cobb-Douglas production function and the First Mover Advantage (Stackelberg Model). Similar to Greenhalgh and Longland (2002) a value added model is used, which conceptually measures the net output of the firm in terms of value. Innovation is measured by a firm\u27s investment in R&D and firm performance is measured by the net earnings before taxes. Using the data on 61 U.S firms across 6 industries the Ordinary Least Squares (OLS) results show that a firm\u27s engagement in process innovation has a significant impact on its performance