According to Schumpeter’s view (1942) on the role played
by the size of firms on Research and Development (R&D)
activities, large R&D firms can be expected to benefit from
economies of scope by diversifying their research portfolio
and the intrinsic technological risk of R&D activities.
Nakamura (1999) finds evidence of a positive relationship
between R&D diversification and knowledge spillovers
both among research programmes within a firm and across
firms. Industrial diversification can however increase the
agency costs between shareholders and managers (Denis
et al. 2002) through personal risk reduction, increased power
and prestige or compensation arrangements for the latter.
Geographic or global diversification is another source
for enhancing R&D productivity. Firms delocalising
research facilities abroad can benefit from the availability
of the local knowledge base and supply of a skilled
workforce (Kuemmerle 1997). Outsourcing R&D outside
the home country allows firms to exploit existing innovations
in local market conditions. On the other hand, the
diversification of activities can also be detrimental to the
R&D productivity of firms. Diversified economic and
research activities prevent firms from exploiting economies
of scale and can also increase managerial costs