Strategic control systems and relative r&d investment in large multiproduct firms

Abstract This paper hypothesizes that tight financial controls associated with large diversified M‐form firms lead to a short‐term, low‐risk orientation and thereby lower relative investment in R&D. Further, it is hypothesized that increasing levels of diversification require different control systems which have significant implications for investing in R&D. Results of the study of 124 major U.S. firms suggest that less diversified U‐form firms invest more heavily in R&D than more diversified M‐form firms after controlling for size and industry effects. Additionally, dominant business firms invested more in R&D than either related or unrelated business firms. Finally, the relationship between R&D intensity and market performance was negative for related and unrelated firms. The findings suggest that the market evaluates R&D investment more positively for firms that are organized to seek synergy than for those that are organized to pursue a hedging (or diversification) strategy.