Elgar original reference
Edited by Craig C. Julian, Zafar U. Ahmed and Junqian Xu
Numerous empirical studies and theoretical exploration have been conducted to test Schumpeter's hypothesis that large enterprises foster technological innovation. The supporters of the theory believe that scale economies in research and development (R & D) derive from the following: (1) due to the incompleteness of capital markets, large enterprises have greater capability to manage risk associated with investment in R & D; (2) specialization and division of labor efficiencies create scale economies; (3) different innovative programs within a large enterprise can share the fixed costs; (4) large enterprises can use R & D results effectively; (5) a large enterprise can maintain monopoly profits from long-term innovation because it can protect its intellectual property better. However, many empirical studies counter Schumpeter's hypothesis with a different conclusion: the situation that Schumpeter's hypothesis depicts barely exists in many industries. In contrast, small enterprises seem to be more propitious in innovating with marketing sensitivity and organizational agility (Acs and Audretsch, 1991; Worley, 1961; Horowitz et al., 1999). According to the literature, the reason for the dispute focuses on industrial characteristics. Schumpeter's hypothesis applies no restrictive condition on industry characteristics, but testing of the hypothesis is based on industry-specific data. Scherer (1980) notes that industrial effects are the main reason for conflicting conclusions in empirical studies on the technological innovation and firm size relationship.
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