What Goes Around Comes Around: How Public Research Fuels Corporate Innovation

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Author: Denis Avetisyan

New research demonstrates that companies reap significant benefits when their scientific publications inspire follow-on work by others, driving innovation and strengthening their research teams.

A study using instrumental variables reveals that firms experience increased patenting, scientist retention, and overall innovation from knowledge spillovers stemming from their publicly shared research.

While firms often face a trade-off between openly disseminating research and protecting proprietary knowledge, this study-‘Bread Upon the Waters: Corporate Science and the Benefits from Follow-On Public Research’-investigates a surprising outcome: the benefits accruing when external scientists build upon a firm’s published work. Analyzing decades of corporate scientific publications, we find that accumulation of this ‘follow-on’ research is linked to increased subsequent investment, improved patenting success, and enhanced employee retention. This suggests that strategically participating in public research may be a viable path to innovation and firm growth-but what conditions maximize these benefits in increasingly competitive scientific landscapes?

The Shifting Sands of Corporate Science

Historically focused on applied research – innovations with immediate commercial applications – companies are now significantly expanding investment into fundamental, or ‘blue skies’, science. This shift represents a departure from solely seeking short-term returns and reflects a growing recognition that groundbreaking discoveries often emerge from explorations into basic scientific principles. This embrace of fundamental research isn’t purely altruistic; it allows firms to establish themselves at the forefront of emerging fields, attract top scientific talent, and generate entirely new technological pathways previously unforeseen. The resulting knowledge base extends far beyond proprietary applications, creating a fertile ground for broader scientific advancement and ultimately fueling long-term innovation ecosystems.

Corporate scientific research increasingly functions as a catalyst for wider scientific advancement, extending its influence far beyond the confines of the originating firm. This phenomenon, termed ‘Corporate Science’, demonstrates that knowledge generated through internal research and development doesn’t remain proprietary; instead, it permeates the broader scientific ecosystem. Through publications, conferences, and personnel movement, these findings become accessible to researchers in academia and other companies, stimulating further investigation and innovation. This dissemination isn’t merely a byproduct of corporate activity, but a core mechanism driving overall scientific progress, evidenced by subsequent studies building upon initial corporate discoveries and attracting further research investment in related fields. The result is a dynamic interplay where corporate R&D actively contributes to the collective body of scientific knowledge, accelerating discovery and fostering innovation across multiple disciplines.

Corporate scientific endeavors increasingly stimulate external research, a process known as ‘Follow-On Research,’ which demonstrably amplifies subsequent scientific investment. This phenomenon extends beyond simple knowledge transfer; independent studies building upon corporate findings serve as a catalyst for further exploration, attracting resources and expertise from across the scientific landscape. The generation of such research isn’t merely a byproduct of corporate activity, but an integral component of its broader impact, fostering a dynamic cycle of innovation where initial discoveries spur a cascade of related investigations. This ripple effect is particularly notable as external follow-on research is significantly more likely to be referenced in a firm’s later patents, highlighting its crucial role in sustaining and extending the value of corporate R&D.

Assessing the extent of knowledge spillover is paramount when evaluating the true return on corporate research and development investments. A recent study demonstrates a significant disparity in how corporate science is leveraged; while a firm’s own patents directly cite its published research in approximately 7% of instances, external follow-on research – studies building upon the initial corporate findings – is ultimately referenced in the firm’s patents a remarkable 33% of the time. This suggests that the broader scientific impact of corporate R&D extends far beyond internal applications, with externally generated knowledge proving substantially more influential in driving future innovation within the originating company. The findings underscore that simply tracking a firm’s patent citations of its own publications provides an incomplete picture; a comprehensive assessment necessitates measuring the cascading effect of knowledge disseminated to, and built upon by, the wider research community.

Measuring Scientific Influence: Beyond Simple Counts

External citation counts represent the number of times research originating from a specific firm is referenced in publications by other researchers and institutions. These citations function as a quantifiable metric of scientific influence, indicating the extent to which a firm’s research contributes to and shapes the broader knowledge base within its field. A higher volume of external citations suggests greater recognition and utilization of the firm’s findings by the scientific community, demonstrating its impact on subsequent research efforts. Data is typically gathered from databases indexing scholarly literature, such as Web of Science or Scopus, and analyzed to determine the frequency with which a firm’s publications are cited by external sources. This metric differs from self-citations, which represent references within the firm’s own publications and are generally excluded from analyses of external influence.

The H-Index is a metric used to quantify both the productivity and citation impact of a researcher or scholarly journal. Calculated by considering both the number of publications and the number of citations those publications have received, the H-Index value represents the largest number h such that h publications have each been cited at least h times. A researcher with an H-Index of 20, for example, has at least 20 publications that have each been cited at least 20 times. Frequently reported in ‘Journal Issue’s, the H-Index provides a single number summarizing a researcher’s cumulative impact, though it is sensitive to career length and field-specific citation practices.

Determining a causal relationship between corporate research and subsequent scientific advancements necessitates careful methodological design due to the potential for confounding variables and reverse causality. Simple correlation between corporate science output and follow-on citations is insufficient; observed associations may arise from unmeasured factors influencing both. Establishing causality requires controlling for these extraneous influences, often through techniques like regression analysis with carefully selected control variables. Moreover, the inherent time lag between corporate research and its potential impact on external publications complicates the analysis, demanding longitudinal data and appropriate temporal modeling to accurately assess the direction of influence.

Instrumental Variable (IV) analysis addresses the challenges of establishing causality between corporate research and subsequent scientific impact by mitigating issues of reverse causality and confounding variables. Traditional regression models may overestimate the effect of corporate science if research output is correlated with unobserved factors also influencing external citations. Our firm-level analysis utilized an IV approach, identifying factors influencing corporate science but not directly impacting follow-on publications, to isolate the causal effect. Results indicate a positive and statistically significant effect of corporate science on the number of follow-on scientific publications; the estimated impact is robust to various specifications and controls, suggesting that corporate research demonstrably contributes to broader scientific advancement.

Internal Capacities: Absorbing Knowledge and Forging New Paths

A firm’s absorptive capacity represents its ability to identify, process, and utilize externally generated knowledge. This capability is not merely about acquiring information, but rather involves recognizing the relevance of external research, assimilating it into the firm’s existing knowledge base, and applying it to create new or improved products, processes, or services. The development of absorptive capacity is dependent on prior knowledge; a stronger existing knowledge base facilitates the understanding and integration of new information. Consequently, firms with well-developed absorptive capacity are better positioned to benefit from external research and development efforts, including those conducted by universities, research institutions, and other companies.

Combinative capabilities represent a firm’s proficiency in integrating previously established knowledge with newly acquired information to generate novel solutions. This process extends beyond simple knowledge absorption; it necessitates the ability to identify relationships between disparate pieces of information, reconfigure existing knowledge bases, and apply these synthesized insights to practical problems. Effectively leveraging combinative capabilities allows organizations to move beyond incremental improvements and achieve more radical innovation, as the recombination of knowledge frequently results in unforeseen applications and breakthroughs. Analysis indicates that firms demonstrating strong combinative capabilities exhibit a higher rate of successful product development and a greater capacity to capitalize on external research investments.

The translation of corporate research and development (R&D) into tangible results – measured by patent outcomes and overall firm innovation – is directly dependent on a company’s internal capabilities. Specifically, the ability to effectively utilize newly acquired knowledge, alongside existing knowledge bases, determines the success rate of R&D investments. Firms demonstrating strong internal capacities consistently exhibit a higher propensity for generating patentable inventions and achieving broader innovative output, indicating that simply conducting research is insufficient without the mechanisms to process and apply the resulting knowledge. Analysis confirms that these internal capabilities are not merely correlative, but causally linked to improved innovation performance and subsequent competitive advantage.

Analysis of corporate research and development data demonstrates a statistically significant correlation between sustained investment in absorptive and combinative capabilities and improved patenting outcomes. Specifically, follow-on research – building upon existing knowledge bases – exhibits a positive effect on the quantity and quality of patents generated. This indicates that firms consistently reinvesting in their ability to recognize, assimilate, and apply new knowledge are more likely to translate research efforts into protectable innovations, thereby fostering long-term scientific success and maintaining a competitive advantage in the marketplace. The observed effect is not attributable to random variation, suggesting a causal link between these internal capabilities and innovation performance.

The Ecosystem of Innovation: Collaboration and Sustained Funding

University-industry collaboration functions as a powerful engine for firm innovation by effectively translating discoveries made in academic labs into marketable products and processes. This synergy overcomes a critical hurdle – the “valley of death” – where promising basic research often fails to reach practical application due to a lack of resources or commercial expertise. Through partnerships, companies gain access to cutting-edge knowledge and specialized facilities, while universities benefit from real-world feedback and funding opportunities. This reciprocal relationship fosters a dynamic exchange of ideas, accelerating the pace of innovation and driving economic growth. The resulting benefits extend beyond individual firms, contributing to broader technological advancements and societal progress, as academic insights are rapidly integrated into industrial practices and consumer products.

Government funding serves as a crucial engine for scientific exploration, particularly in areas where immediate commercial returns are uncertain or distant. This support enables researchers to pursue fundamental inquiries and high-risk projects that private investment often overlooks, fostering breakthroughs with potentially transformative, yet unpredictable, impacts. These long-term investigations lay the groundwork for future innovation, driving progress in fields like renewable energy, disease treatment, and materials science. By de-emphasizing short-term profitability, governmental financial backing allows for a more comprehensive and exploratory approach to research, ultimately expanding the boundaries of human knowledge and paving the way for unforeseen technological advancements that benefit society as a whole.

Research indicates a strong correlation between collaborative efforts – particularly those bridging academia and industry – and a notable increase in subsequent research endeavors. This isn’t merely a continuation of existing projects, but rather a demonstrable expansion of scientific inquiry, fueled by the cross-pollination of ideas and resources. Crucially, this effect is significantly amplified when coupled with consistent government funding, which allows researchers to pursue long-term, potentially groundbreaking investigations that might otherwise be deemed too risky for private investment. The resulting cycle of follow-on research doesn’t simply build upon existing knowledge; it creates a positive feedback loop, accelerating the pace of scientific advancement and fostering an environment where innovation can flourish. This interconnectedness highlights that sustained progress isn’t achieved through isolated discoveries, but through the synergistic interplay of collaboration, funding, and a commitment to extending the boundaries of current understanding.

Sustained innovation hinges not only on initial discovery but also on the ability to retain skilled scientists; a positive research environment, demonstrably linked to high employee retention, is therefore paramount. Analysis reveals a statistically significant correlation between continued research funding – indicated by ‘follow-on research’ – and the longevity of scientific staff. This suggests that consistent investment in research projects fosters a stable and productive atmosphere, encouraging researchers to remain engaged and contribute to long-term advancements. The findings highlight that supporting ongoing work is not merely about furthering scientific knowledge, but also about cultivating a dedicated workforce essential for translating discoveries into impactful innovations.

The study meticulously demonstrates how firms accrue benefits from knowledge spillovers originating from publicly disseminated research – a phenomenon often underestimated in conventional economic models. This aligns with the observation that “A wise man proportions his belief to the evidence.”, as articulated by David Hume. The research highlights that participation in open innovation, through scientific publication, isn’t merely altruistic, but a strategic calculation. The findings reveal a demonstrable link between sharing knowledge and subsequent innovation, scientist retention, and patent outcomes. It’s not about possessing absolute certainty, but rather acknowledging the probabilistic nature of discovery and understanding how evidence accumulates over time – a principle perfectly captured by Hume’s emphasis on proportionate belief. The paper’s instrumental variable approach attempts to isolate the causal effect, acknowledging inherent uncertainties in complex systems, and offering a rigorous assessment of benefits – benefits that are, by their nature, always provisional.

What’s Next?

The observation that firms accrue benefits from the public dissemination of their research – a sort of ‘bread upon the waters’ effect – isn’t particularly surprising. What demands further scrutiny is the mechanism. Establishing correlation is, after all, a long way from demonstrating causation. The current work utilizes instrumental variables, a necessary step, but the search for truly exogenous shocks to isolate the impact of publication on firm innovation remains a challenging, and likely never fully resolved, pursuit. Anything confirming expectations needs a second look, and the potential for reverse causality – successful firms publishing because they innovate – should not be dismissed lightly.

Future work might profitably investigate the conditions under which these spillovers are maximized. Does the field of research matter? Are certain knowledge-sharing practices more effective than others? A hypothesis isn’t belief – it’s structured doubt – and the assumption that all published research contributes equally to the innovation ecosystem seems, at best, optimistic. The heterogeneity of research quality, and the varying absorptive capacities of firms, surely play a significant role.

Finally, a more nuanced understanding of the scientist’s role is needed. While retention is noted, the paper doesn’t delve into why scientists stay. Is it the immediate payoff of patenting, the intrinsic reward of contributing to the public good, or simply the inertia of established networks? The idea that participation in open innovation is purely strategic overlooks the less quantifiable, but potentially crucial, aspects of scientific motivation.

Original article: https://arxiv.org/pdf/2512.04400.pdf

Contact the author: https://www.linkedin.com/in/avetisyan/

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2025-12-08 04:01