Internacionalização de Firmas

R&D, Internationalization and Growth of Newly Listed Firms: European Evidence
Author(s): Igor Filatotchev and Jenifer Piesse

Source: Journal of International Business Studies, Vol. 40, No. 8 (Oct. - Nov., 2009), pp. 1260-
1276
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Journalof International Business Studies 40, 1260-1276
Business All rightsreserved0047-2506
2009 Academyof International
www.jibs.net
R&D, internationalization and growth of
newly listed firms: European evidence
IgorFilatotchev1and Abstract
The initialpublic offering (IPO) isan importantstage inthe lifecycle of privately
JeniferPiesse2 held and entrepreneurial firms. For innovative firms eager to capitalize on
75/rJohn Cass Business School, City University
their technological advances, an IPO represents a springboard for a rapid
London, London, UK; 2Department of
internationalexpansion of sales. However, there is littleresearch on the longer
Management, King's College London, term, post-IPO strategic evolution of newly listed companies, including their
London, UK internationalization.We build on internationalentrepreneurship and dynamic
capabilities perspectives and examine interrelationshipsbetween R&D, export
Correspondence: ingand growth of newly listedfirmsinthe UK, Germany, Italyand France. Using
I Filatotchev, Sir John Cass Business
panel data for 1110 IPOs during the period 1985-2004, we found that R&D
School,
City University London, 106 Bunhill Row,
London EC1Y UK. intensityisan importantantecedent factor for internationalizationof sales. Both
8TZ,
R&D and export intensitieshave a positive effecton the sales growth of newly
Tel: +44(0)20 7040 5278;
Fax: +44 (0)20 7040 8328; listedfirms.However, R&D intensityispath dependent, and isdetermined by
E-mail: levelsof accumulated intangibleassets and debt. Intermsof time dynamics, the
igor.filatotchev@city.ac.uk
growth of IPO firms is at its highest level just after the float,whereas export
intensityincreases as IPO firmsmature. We conclude that managers and IPO
investorsneed to take into account not only growth opportunities but also past
innovation and financial constraints on managers' choices.
strategies strategic
journal of InternationalBusiness Studies (2009) 40, 1260-1276.
doi: 10.1057/jibs.2009.18
Keywords: innovation and R&D; capabilities and capability development; initial public
offerings; exports
INTRODUCTION
It is increasingly recognized in the management literature that the
initial public offering (IPO)is an important stage in the life cycle of
privately held and entrepreneurial firms. At this critical juncture, a
firm has overcome the first challenges of its entrepreneurial phase
and has entered a growth stage. As Fama and French (2004: 229)
emphasize, an IPO "is the point of entry that gives firms expanded
access to equity capital, allowing them to emerge and grow."
Finance raised in the IPO can be used for developing existing and
new capabilities that support innovation and international expan
sion (Carpenter, Pollock, & Leary, 2003). For many innovative
firms, eager to capitalize on their technological advances, an IPO
represents a springboard for a rapid international expansion of
sales. However, despite the increasing recognition of the impor
tance of the IPO in the life of the firm, there is surprisingly little
Received: 29 October 2005
research on the longer-term, post-IPO strategic evolution of newly
Revised: 5 December 2008
Accepted: 23 December 2008 listed companies or, more specifically, their internationalization.
Online publication date: 16 April 2009 Key research questions that still remained unanswered are: How are
_R&D, internationalization and growth of IPOs IgorFilatotchevand Jenifer
Piesse_
1261
the innovation activities of the newly listed firm, Being new to the stock market, IPO firms still lack
such as investment in R&D, related to its inter many positional advantages compared with their
nationalization How do internationalization more mature peers, such as status, investors' trust
paths?
and innovation growth after
affect organizational or managerial legitimacy among stakeholders,
the flotation? Finally, are R&D andinternationali similar to new ventures (Sapienza et al., 2006).
zation path dependent, and driven by the historic Therefore their ability to innovate and expand
of the newly listed firm, such as internationally may be a key factor affecting their
developments
accumulation of intangible assets and changing survival and growth after flotation, in line with
capital structure? Although McDougall and Oviatt arguments developed by international entrepre
(1996: p. 903) have identified internationalization neurship studies (Autio et al., 2000; Sapienza
of IPOs as one of the major areas of interest within et al., 2006; Zahra, Ireland, & Hitt, 2000).
international entrepreneurship, there is virtually On the other hand, IPO firms come to the stock
no research on the drivers and impact of R&D on market with
relatively advanced technological,
newly listed firms in the international environment. administrative and organizational skills compared
Within the international business literature, two with entrepreneurial start-ups, since investors and
important research streams have analyzed the underwriters demand a relatively high level of
interrelationships between
organizational knowl professionalization from an IPO firm (Filatotchev
edge, innovation international expansion.
and The & Bishop, 2002; Jenkinson & Jones, 2004). Through
process theory (e.g., Eriksson, Johanson, Majkg?rd, their historic investments in R&D, or mergers and
& Sharma, 1997; Johanson & Vahlne, 1977) is acquisitions, some newly listed firms have had an
focused mainly on mature, well-established firms, opportunity to build a knowledge base associated
and considers internationalization as a gradual with intangible assets, such as patents, licenses and
process of incremental learning aboutforeign know-how (Carpenter et al., 2003; Kotha, Rindova,
markets, accompanied by marginally increasing & Rothaermel, 2001). This knowledge base may be
resource commitments to internationalization used in knowledge exploration through further
related strategic decisions. More recently developed R&D investment, as well as in knowledge exploita
international entrepreneurship research is con tion through international
expansion of sales
cerned with the internationalization strategies of (Lane, Koka, & Pathak, 2006). In addition, unlike
younger entrepreneurial ventures (Autio, Sapienza, high-risk entrepreneurial ventures, IPO firms may
& Almeida, 2000; Lu & Beamish, 2001; McDougall have been able to use wider sources of funding,
& Oviatt, 1996, 2000). It suggests that new ventures including an injection of new equity or debt, and
initiate international activities earlier in their life they have diverse levels of financial constraints
and expand them rapidly in pursuit of on innovation and growth. International entrepre
cycle,
growth opportunities by taking advantage of their neurship studies suggest that the internationaliza
ability to innovate (Sapienza, Autio, George, & tion path of newly listed firms should depend,
Zahra, 2006). Although both research streams among other things, on their ability to innovate.
suggest that an internationalization path is not We develop these arguments further and suggest
necessarily based on the possession of tangible that, in the context of IPOs, this ability may be path
assets and reputation, but rather on the firms' dependent, and augmented by the historic devel
ability to leverage its knowledge and innovation, opments of the newly listed firm in terms of the
neither of them has specifically considered the accumulation of intangible assets and changing
internationalization and growth of IPO firms. financial constraints. Therefore, the dynamism of
listed firms, however, provide a unique newly listed firms may make them a special case of
Newly
since they a more associated with growth
laboratory for further theory building, general phenomenon
represent a bridge between mature, publicly listed through innovation and internationalization.
companies and entrepreneurial firms within the In this paper, we build on international entrepre
perspective. On one hand, neurship research that integrates the knowledge
knowledge-based
although newly listed firms have survived the based framework with internationalization theory
uncertainties associated with the early-stage, entre (e.g., Autio et al., 2000, Sapienza et al., 2006; Zahra
preneurial phase, they still may suffer from "liabil et al., 2000) and examine the links between
ities of adolescence" (Hannan, 1998) caused by lack innovation, internationalization and growth. This
of reputation and social capital, and a relatively approach has been successfully used in the analysis
narrow resource base (Zahra & Filatotchev, 2004). of international expansion choices (Johanson &
Journalof International Business Studies
* _R&D, internationalization and growth of IPOs IgorFilatotchevand Jenifer
Piesse
1262
Vahlne, 1977) and the internationalization of new Lopez-de-Silanes, & 1999;

Shleifer,Pedersen &
ventures (Zahra et al., 2000), and we apply it to a Thomsen, 1997). We a more
develop generalized
novel context of newly listed firms. Our study is analysis by considering newly listed firms in the
focused on exporting strategy, since, in the context four largest European economies: the UK, Germany,
of entrepreneurial and IPO firms who are looking Italy and France. At the same time, the institutional
for a rapid expansion of their sales, itmakes sense characteristics of these economies are quite differ
to focus on the first stage of internationalization, ent, and they provide a useful setting for assessing
that is, direct exporting. In this regard our analysis the impact of R&D and export development on the
follows an established tradition within interna growth of entrepreneurial firms.
tional entrepreneurship research that also considers Finally, our study makes a methodological
exporting as a proxy for the firm's international contribution to international entrepreneurship re
activities, with cross-border mergers and acquisi search by estimating the interrelationships between
tions, greenfield investments, etc. being internatio innovation, export orientation and growth as a
nalization strategies that are more relevant formore system of simultaneous equations using a unique
mature firms (Autio et al., 2000; McDougall & panel data set for 1110 IPO firms that covers the
Oviatt, 1996). period 1985 to 2004. These
longitudinal data
Our study departs from existing work in several provide an opportunity only not
to the
explore
ways. First, we analyze the effects of R&D on the temporal state of internationalization and its ante
internationalization path of firms at the critical cedents at a specific point of time, but also to
stage of their
life cycle. More importantly, we analyze the evolutionary trajectory of the newly
investigate the combined effects of innovation listed firm.
and internationalization paths on the growth
dynamics of the
newly listed firm, since our CONCEPTUAL FRAMEWORK AND HYPOTHESES
key assumption is that IPO firms may opt for a An IPO represents a critical organizational devel
rapid internationalization in pursuit of growth opment stage, which is often referred to as
opportunities. the "rebirth" or "restart" of organizations (Finkle,
Second, we advance internationalization theory 1998: 6). Newly listed firms have survived the
by taking into account the dynamic nature of initial upheaval of their inception stage, and they
innovation. More specifically, we contribute to came to the public equity market for finance that
the internationalentrepreneurship field by explor would allow them to improve their financial
ing important boundary conditions for innovation position and take
advantage of their
growth
in the context of newly listed firms. Our paper which be driven
opportunities, may by their
provides a novel framework for modeling the innovation activities and their ability to move into
time-dependent effects of firms' intangible assets geographically diverse markets (Pagano, Panetta, &
and capital structure on innovation, which, in Zingales, 1998). At the same time, this move to
turn, affects exporting and growth. Although become more "professional" subjects the IPO
we use publicly available information obtained firm's growth strategy to the intense scrutiny
from annual reports, our framework helps in of the regulator, stock-market analysts, and the
understanding a complex web of interrelation investment community (Filatotchev & Bishop,
ships between accumulated knowledge, innova 2002). Building on international entrepreneurship
tion, internationalization and, ultimately, growth. research that applies knowledge-based theory and a
In their editorial article in JIBS Tung and van dynamic capabilities perspective in explaining the
Witteloostuijn (2008) indicate that issues related phenomenon of internationalization
in entrepre
to the effects of knowledge-based competition neurial and fast-growing firms (e.g., Autio et al.,
on internationalization represent an important 2000; Lane et al., 2006; et al., 2006;
Sapienza
domain of international business studies, and here Zahra et al., 2000), our study's main premise is
we see our main contribution. that investment in R&D enhances organizational
Third, the vast majority of IPO studies have knowledge and learning capabilities, which, in
focused on single countries, with the US being a turn, are important antecedent factors of the IPO
dominant area of research, whereas many European firm's capability to pursue international expansion
countries also have large capital markets and by increasing exporting as the proportion of total
substantial numbers of new listings (La Porta, sales (Eriksson et al., 1997). Figure 1 provides an
Lopez-de-Silanes, Shleifer, & Vishny, 1997; La Porta, outline of our theoretical framework.
of IPOs '
_R&D, internationalization and growth IgorFilatotchevand Jenifer
Piesse_
1263
Intangible Carpenter et al., 2003). We expect, therefore, that

assets R&D and exporting will operate in parallel, leading
H4 to an increase in the growth of sales of the newly
listed firm. The following sections discuss these
HI H2
Export IPO firm's issues in detail.
R&D intensity
intensity growth
H3 R&D Intensity and Export Orientation
H5
Both the traditional international business literature
ratio
(Buckley & Casson, 1976; Dunning, 1993; Hennart,
Leverage
1982) and more recent international entrepreneur
ship research (Kotha et al., 2001; McDougall &
-
Hypothesized effects Oviatt, 2000; Lu & Beamish, 2001; Zahra et al.,
- 2000) suggest that internationalization, among
Control effects
other factors, may be driven by the firm's efforts
Figure 1 Conceptual model. to leverage its capability in organizational learning
and innovation.Autio et al. (2000: 911), for
example, argue that organizational ability to assim
We extend international entrepreneurship ilate and exploit new knowledge should have a
research by arguing that the firm's R&D strategy direct impact on international sales, since inter
is path dependent, and itmay be affected by the nationalizing firms "must apprehend, share and
firm's accumulated knowledge-related, intangible assimilate new knowledge in order to compete and
resources, as well as financial constraints. For grow in markets in which they have little or no
example, Phillips (2002), in his analysis of imprint previous experience." This ability influences the
ing effects in corporate spinoffs, argues that firm's efforts to adapt products to local market
inherited resources and routines interact with the conditions, offer customized applications, and take
organization's environment in defining its long advantage of new market opportunities through
term strategic development and, ultimately, survival. rapid new product developments (Zahra et al.,
Klepper (1996) suggests a theoretical model that 2000). Because
knowledge is inherently mobile,
explains how the firm's innovative capabilities as a knowledge-intensive firms can exploit interna
starting condition affect its subsequent R&D spend tional growth opportunities by combining this
ing. Finally, process theory within the IB field also knowledge with other assets, such as overseas
emphasizes the importance of organizational cap distribution channels, at relatively low costs (Autio
abilities and resource constraints within the et al., 2000). Finally, knowledge-intensive firms
dynamic model of learning and internationaliza may have incentives to internationalize sales, since
tion (Eriksson et al., 1997). Taken together, these they have to reach out to larger markets to achieve
theoretical streams point out that the dynamics of the return required to justify the relatively high
R&D investment in the newly listed firm may be development costs required to create the product or
path dependent, with accumulated intangible service (Zahra et al., 2000).1
assets such as patents, licenses, and know-how, In the majority of empirical studies, organization
and financing decisions with regard to the firm's learning theorists have associated knowledge
debt-to-equity structure (leverage) at an IPO having related capabilities with the firm's R&D activities
an impact on the post-IPO R&D trajectory, and, as a (see Lane et al., 2006, for a recent review). As Cohen
result, internationalization. and Levinthal (1990: 148) emphasize, "R&D creates
Finally, in terms of organizational outcomes, a capacity to assimilate and exploit new knowl
both organizational learning theorists and strategy edge." Therefore R&D intensity should be an
researchers consider investment in R&D to be an important antecedent factor of international sales
important process that expands organizational growth. This line of argument is also supported by
capabilities over time (Cohen & Levinthal, 1990; researchers working within the process theory
Hoskisson, Johnson, & Moesel, 1994). Exporting domain of international business. For example,
strategies expand access to markets over a Eriksson et al. (1997) argue that product and
wider geographical area by taking advantage of process innovations may help firms not only
actual or
anticipated demand for products and improve their competitiveness at home, but also
services overseas (Andersen, 1993; Bonaccorsi, 1992; take advantage of opportunities presented by
R&D, internationalization and growth of IPOs IgorFilatotchevand Jenifer
Piesse
1264
international markets. Aulakh, Kotabe, and Teegen in developing capabilities, including investment in
(2000) provide a theoretical framework in which R&D (Sapienza et al., 2006), and it becomes an
export performance is explained by distinct strategy important determinant of a firm's long-term
factors linked to product development. growth (Barney, 1991: 108). This research stream
Newly listed firms present a particularly impor not only attempts to identify factors that are
tant research context for studying the effects of correlated withsuperior performance and growth,
R&D on internationalization. Stock market flota but also explores the origins and the dynamics of
tion provides an injection of equity capital that its adoption (Cockburn et al., 2000: 1124).
may be used to foster innovation (Deeds, DeCarolis, An IPO represents one of the most important
& Coombs, 1998). These newly listed firms may historical events in the organizational life cycle
possess "learning advantages of newness" over (Filatotchev & Bishop, 2002; Finkle, 1998). However,
older, more mature peers, such as entrepreneurially the population of IPO firms is far from homoge
oriented management teams, greater willingness to neous, and there are profound differences among
take risks, etc. (Autio et al., 2000; Certo, Daily, & firms in terms of their initial condition. Some
Dalton, 2001; Finkle, 1998). At the same time, they firms have been
actively involved in innovation,
come to the stock market with relatively developed and they come
to the equity market with a
organizational systems, processes and procedures portfolio of patents, know-how and other intangi
(knowledge management, internal controls, etc.), ble assets that may support future R&D activities,
because equity investors and underwriters require fueled by an injection of equity capital. Others use
an advanced level of "professionalization" from an IPO proceeds to reduce their accumulated debt and
IPO firm compared with entrepreneurial start-ups alter their capital structure (see Hensler, Rutherford,
(Filatotchev & Bishop, 2002). Moving away from & Springer, 1997, for a discussion). These differ
the entrepreneurial template, these firms are likely ences in initial conditions at the time of the IPO
to have developed formal and informal systems and may affect the strategic dynamics of newly listed
procedures for knowledge-sharing and manage firms. In this section, we focus on two factors:
ment (Lane et al., 2006), which are a critical part accumulated intangible assets and debt.
of R&D activities. Therefore newly listed firmsmay The dynamic capabilities arguments imply that
be particularly well positioned to use their R&D the ability of newly listed firms to engage in R&D
investment as a platform for rapid international may be related to their previous efforts to develop a
expansion (Carpenter et al., 2003). Hence: knowledge base (Cockburn et al., 2000; Helfat,
1997). More specifically, firms with substantial
Hypothesis 1: After the IPO, the export intensity intangible assets, such as patents, licenses, and
of the newly listed firm is positively affected by know-how, are likely to develop a relatively broader
R&D intensity. knowledge base
that underpins their current R&D
activities (Dierickx & Cool, 1989; Helfat, 1997),
Intangible Assets, Debt and R&D and their managers may be less risk averse in terms
Our previous arguments consider R&D investment of pursuing growth through innovation (Zahra
as a critical strategy that underpins the IPO firm's et al., 2000). Having built intangible assets, they
internationalization. However, research on organi are better positioned to venture further from their
zational dynamics argues that firms' capabilities, existing knowledge base and
advantage take
of
including their capability to innovate, are driven by exploratory learning through R&D, which results in
unique and idiosyncratic resource endowments new products and processes, as well as new
that often emerge from path-dependent histories intangible assets (Cohen & Levinthal, 1990).
of individual firms (Eisenhardt & Martin, 2000: International entrepreneurship studies also sug
1108). More specifically, several studies within the gest that the extent of intangible assets accumu
strategic management and organizational ecology lated by newly listed firms should have a positive
fields (e.g., Cockburn, Henderson, & Stern, 2000; impact on R&D. For example, Sapienza et al. (2006:
Hannan, 1998; Helfat, 1997; Stinchcombe, 1965) 924) argue that the presence of intangible assets
emphasize that business strategy may depend on enhances the entrepreneurial firm's resource
the extent to which events occurring at certain key - that the extent to which resources
fungibility is,
developmental stages have persisting consequences may be deployed for alternative uses at low costs.
(Hannan, 1998: 132). This path dependence may This resource fungibility, in turn, provides a flexible
influence the firm's decisions to invest resources platform for innovation. In addition, firms focusing
journal of International Business Studies
and growth of IPOs '
_R&D, internationalization IgorFilatotchevand Jenifer
Piesse_
1265
on tacit assets as the source of advantage are more ciers, particularly debt holders, to finance R&D
likely to develop learning skills and innovate since the returns are uncertain, and there may be
than firms that are more dependent on tangible no tangible assets that can be used as loan
resources (Autio et al., 2000). Helfat (1997) argues collateral. After becoming a publicly listed entity,
that intangible assets create a larger stock of the IPO firm is subject to a rigorous risk evaluation
complementary knowledge on which to draw. by investors and analysts. If the IPO firm inherited
These arguments suggest the following hypothesis: a high level of debt after the listing, this would
add to its overall risk profile, further reducing its
Hypothesis 2: After the IPO, the R&D intensity chances of obtaining funding for R&D. In addition,
of the newly listed firm is positively affected by international entrepreneurship studies point out
previously accumulated intangible assets. that reduced financial slack may limit resource
fungibility, and therefore may negatively impact on
International entrepreneurship research, how R&D efforts (Sapienza et al., 2006: 925). These
ever, also suggests that the strategic path of the arguments combined suggest that historical
IPO firmmay be affected by resource constraints - financial decisions manifested in a high level of
financial constraints in particular - that may limit leverage in the newly listed firm may create an
the extent of innovation and learning (Sapienza effective financial constraint for R&D investment,
et al., 2006). Although IPO firms receive a sub especially in an environment of IPOs where growth
stantial injection of equity finance upon listing, opportunities are uncertain (Lev, 1999). Hence we
and are relatively better capitalized than private, suggest:
entrepreneurial start-ups, post-flotation growth and
expansion do not rely solely on internally gener Hypothesis 3: After the IPO, the R&D intensity
ated financial resources (Fama & French, 2004). of the newly listed firm is negatively affected
Eager to capitalize on growth opportunities, newly by previously accumulated debt (level of
listed firms often take advantage of a reduced cost leverage).
of capital and increase
their borrowing through
new bank loans, leading to a build-up of debt Internationalization, R&D and Growth
and an increase in leverage, right after the float In previous sections we discussed the antecedent
(Hensler et al., 1997; Jain & Kini, 1994). The factors and effects of R&D on internationalization
corporate strategy literature has identified various in the context of newly listed firms. In this section
links between capital structure and strategy deci we focus on links between internationalization,
sions such as investment in R&D and product innovation and growth of the IPO firm.
diversification, and acknowledges that strategies Previous studies in international entrepreneur
may be affected by the financial constraints faced ship see growth opportunities as a driver of the
by the firm(Kochhar, 1996; Kochhar & Hitt, 1998). choice to internationalize (Autio et al., 2000; Zahra
As Teece, Pisano and Sheun (1997: 521) suggest: et al., 2000). As Sapienza et al. (2006: 920) suggest,
"What a firm can do in short order is often a "internationalization influences the development
function of its balance sheet." of capabilities that give the organization the
The possible negative effects of the accumulated flexibility to pursue opportunities for growth."
debt on the IPO firm's R&D investment are the associated with
Despite complexities globaliza
particularly important, for several reasons. First, tion, previous research suggests that growth may
R&D activity often creates tacit assets in the form of depend on an international presence (Carpenter &
new knowledge. However, it also involves a high Fredrickson, 2001). Internationalization enables
degree of uncertainty, making it difficult to evalu firms to leverage their existing capabilities across
ate returns to the investment in the short term. countries and create scale economies otherwise
Second, it involves high sunk costs, such as unavailable domestically (Andersen, 1993; Dominguez
investment in research facilities, while the output, & Sequeira, 1993). It provides new market oppor
such as the production of new goods and services, tunities in which the firm can sell product innova
must be protected, either by patents or by other tions, as well as connections with important
forms of intellectual property rights that are costly constituencies in diverse markets, allowing it to
to obtain and may take time to secure. Hall (1992) obtain resources economically (Zahra et al.,
key
and Bah and Dumontier (2001) argue that these 2000). Carpenter and Fredrickson (2001) also
characteristics make it difficult for external finan suggest that being exposed to overseas markets
_R&D, internationalization and growth of IPOs IgorFilatotchevand jeniferPiesse
1266
helps the firm to acquire new knowledge that can difficult for banks other lenders to accept as
and
be used to build new value-creating skills and collateral, and is
that why they turn to equity
augment existing capabilities. markets in the first place (Deeds et al., 1998; Fama
To satisfy investors' expectations of high growth & French, 2004). These specific characteristics of
prospects, newly listed firms may be particularly IPO firms, combined with previous research on the
eager to take advantage of the growth opportunities organizational outcomes of R&D, suggest the
provided by internationalization (Carpenter et al., following hypothesis:
2003). In a rare empirical study of global strategies
of high-technology IPOs in the US, Carpenter Hypothesis 5: After the IPO, the sales growth of
et al. (2003) argue that these firms are continually the newly listed firm is positively affected by R&D
searching for new markets and new ways of intensity.
organizing their operations. This study shows that
IPO firms with a global presence take advantage of Hypotheses 1-5 outline the interrelationship
new information gained by internationalization between R&D, internationalization and growth, as
when competing in their home market. Building well as the antecedent effects of the IPO's R&D
on this research, we suggest: efforts, and they are represented by solid arrows in
Figure 1. However, intangible assets and leverage
Hypothesis 4: After the IPO, the sales growth of may directly affect internationalization and
the newly listed firm is positively affected by growth. Although a comprehensive analysis of
export intensity. these direct links goes beyond the scope of this
paper, we control for these possible effects in our
Prior research suggests that R&D intensity, apart empirical analysis (dotted arrows in Figure 1). The
from its effect on increased sales through stimulat next section provides an account of our empirical
ing exporting activities, may also be a direct methodology and research results.
determinant of firm growth (Griliches and Mairesse,
1984, 1990; Myers, 1977). International entrepre METHODS
neurship studies emphasize that R&D investments
are aimed at developing new and improving Data
existing products, as well as reducing the cost of To test our research hypotheses, firm-level data
producing existing goods and services. These were collected for all firms that obtained a public
actions help the firm to target new market listing on the main stock markets in the United
segments and earn higher profits (Zahra et al., Kingdom, France, Germany and Italy over the
2000). Autio et al. (2000) also argue that R&D period 1985-2000. The list of IPO firms for each
expenditure represents investment in knowledge country was obtained from the national stock
and technology which has the potential to increase exchanges and Thomson One Banker database.
firm growth. et al.
Zahra (2000) suggest that Initially, 1664 IPO firms consisting of 865 UK,
technological learning can provide a major founda 339 French, 275 German and 185 Italian firmswere
tion for the organizational routines that reinforce identified. Consistent with prior studies (e.g., Rajan
existing core competences and help to develop new & Zingales, 1995), all regulated and financial firms
ones, leading to higher performance and growth. were eliminated, since their liabilities and opera
Furthermore, Hall and Mairesse (1995) provide tions depend on regulations specific to the indus
evidence that having a longer history of R&D try: thus comparing their characteristics with those
investment is a prerequisite to achieving sustained of non-financial firms will introduce substantial
growth, compared with one-off R&D investments. heterogeneity into the analysis. Furthermore, since
Therefore a firm that has successfully developed the focus of the study is on newly listed firms, all
new products or superior technology relative to its introductions, transfers from one market to
competitors will increase market share. another, demergers and reverse takeovers were
These arguments may be particularly relevant excluded. This resulted in a final sample of 1110
when considered in the context of IPO firms. The firms. Data were collected for these firms from the
vast majority of these firms come to the market date of the IPO to December 2004, or the date of
because they have substantial growth opportunities delisting, whichever came first. The financial
(Certo et al., 2001). These opportunities are often accounting and stock market data on sales revenue,
underpinned by R&D and innovation, which are R&D investment, international activities,
expansion
and growth of IPOs *
_R&D, internationalization IgorFilatotchevand Jenifer
Piesse_
1267
total assets, long-term and short-term debt and countries. Thus total sales are used in the variable
market capitalization were obtained from Thomson definitions, since these are not subject to the
One Bankerand company reports. The full sample revaluation problem.
consists of 10,102 firm-year observations: 4969 UK, The third major difference is that while some
2039 French, 1723 German and 1371 Italian. firms have consolidated financial statements,
Finally, because of the importance of capturing others report independent financial statements.
the dynamics of these firms, the lags, differences This makescomparison difficult, and therefore
and lagged differences in the variable construction only firms reporting consolidated financial state
resulted in the exclusion of any firmwith less than ments are used in this study, following Prowse
3 years' history post-IPO, leaving 9759 firm-years. (1990) and Rajan and Zingales (1995).
The data for UK IPOs were converted to euros
using annualized average exchange rates for each Measures
year to ensure a common currency unit, and all In line with our hypotheses, we used three
data were transformed to constant values by dependent variables. R&D intensity ismeasured as
deflating by the average national annual retail R&D expenditures as a percentage of sales (R&D/
=
price indices (2004 100). Attention was also sales). Export intensity ismeasured as international
given to the problems associated with comparisons sales as a percentage of total sales (International
using accounting data that arise from international sales/sales). Finally, growth is measured as annual
differences in company accounting practices, percentage change in total sales (Sales growth).
which can affect how certain transactions are In terms of independent variables, we used the
accounted for in the financial statements. Follow firms' intangible assets as a percentage of sales
ing the literature (e.g., Griliches & Mairesse, 1984, (Intangibles/sales), and Leverage was calculated as a
1990; Rajan & Zingales, 1995), the key areas of percentage ratio of long-term debt to equity plus
difference were identified and the necessary adjust long-term debt.
ments were made. In the regression we controlled for a number of
First, in continental Europe, firms have a much firm - and industry-level factors that may affect
higher proportion of provisions in the financial R&D, exporting and growth. To control for firm
accounts than UK firms. For instance, in Germany, size, we used the natural logarithm of market
provisions include a large number of company capitalization (Ln Market capitalization). R&D and
based supplementary old age pension schemes. In export intensity may be affected by investment in
addition, German accounting practices allow firms fixed assets, and we included capital expenditures
to set aside greater provisions for future potential normalized by total sales as a control variable
liability. Similarly, Italian firms accumulate
with (Capital expenditure/sales). International entrepre
drawals from the monthly salaries of employees in neurship research emphasizes the importance of
the form of "provisions for termination indemnity," potential effects of the firm's age on internationa
which are subject to favorable tax treatment and lization, with changes and influences experienced
are paid only when an employee leaves the firm. early in the organizational life cycle likely to have a
This practice is less prevalent in France and the UK. stronger effect than changes that occur at later
Thus, in Germany and Italy, reported earnings may stages (Autio et al., 2000). To account for these
be less representative of true earnings than those effects we introduced a Firm age variable, measured
in France and the UK (Alford, Jones, Leftwich, & as the number of years since the company was
Zmijewski, 1993). To account for this problem, founded.
provisions were excluded from the balance sheets Previous IPO studies emphasize that the flotation
of German and Italian firms, following Ando and offers firms access to equity capital in two ways:
Auerbach (1988) and Rajan and Zingales (1995). (1) capital raised during the IPO itself, which is a
The second major difference relates to asset one-off opportunity; and (2) the capital raised after
valuation. Common practice dictates that assets the IPO in the form of secondary equity offerings
are stated in the financial statements at historic (SEO), which can occur many times as long as the
cost. However, while asset revaluation is rare in relevant stock market regulations are met (Fama &
Germany and discretional in the UK, it is compul French, 2004). To control for this we introduced an
- to some extent -
sory in France and Italy. This SEO dummy variable that equals 1 for each year that
suggests that the asset values of German firmsmay the firm had secondary offerings after the flotation
be understated relative to those in the other and 0 otherwise.
* _R&D, internationalization and growth of IPOs IgorFilatotchevand Jenifer
Piesse
1268
To account for post-flotation dynamics, we used applications in management and economics

the number of years after the IPO (Years post IPO) as research (see Thirtle, Piesse, & Lin, 2003, for a
a time variable specific to each firm. Industry discussion). The causal chain model has the
effects are included using dummy variables for advantage of imposing a structure that accommo
manufacturing, trade and services firms, with the dates nine variables, three of which are treated as
remaining sample used as a control. Previous endogenous in the construction, plus industry and
research on strategy and performance provides country dummies. To be complete the system
justification for inclusion of all of the variables requires that the number of equations is equal to
(see Filatotchev, Demina, Wright, & Buck, 2001; the number of endogenous variables, which is the
Shaver, 1998). case here.
Finally, although the European countries in this To test our hypotheses we constructed three
study are largely homogeneous in their level of equations. In Eq. (1), R&D as a percentage of sales
economic development, their institutions are dif (R&D/sales) is the dependent variable. Explanatory
ferent in many respects (Pedersen & Thomsen, variables are intangible assets as a percentage of
1997; Thomsen & Pedersen, 2000). Indeed, recent sales (Intangibles/sales) and Leverage (Hypotheses 2
research (e.g., La Porta et al., 1997, 1999) has and 3) plus controls. To test for a reverse causality
documented a large divergence between the UK between R&D expenditures and international sales,
and continental Europe, particularly Germany, we also introduced a lagged International sales/sales
France and Italy, in terms of the breadth and depth variable. In Eq. (2), international sales as a percen
of capital markets, in accounting and taxation tage of total sales (International sales/sales) is the
systems, and in the level of merger and acquisition dependent variable. The specification is the similar
activity. Kaplan and Stromberg (2004) and Meggin Eq. (1), with the addition of R&D/sales, lagged 1
son and Weiss (1991) argue that a well-functioning year, to capture the effects of investment in
stock market is a prerequisite for an active venture innovation on internationalization 1).
(Hypothesis
capital funds to innovating
industry that provides Finally, Eq. (3) models the effectsof R&D and
and growth-oriented firms. This implies that the export intensities on growth of sales (Sales growth)
UK, which has a substantial equity-driven capital as the dependent variable (Hypotheses 4 and 5),
market (La Porta et al., 1997; Levine & Zervos, again with the same control variables as Eq. (1).
1998) and an active venture capital industry Also included in the third equation is the interac
would have more R&D-intensive firms than coun tion of the R&D and international sales variables.
tries in continental Europe (Bhagat & Welch, 1995; This interaction term allows us to verify possible
Jenkinson & Jones, 2004). One might also expect complementarity/substitution between R&D and
that in countries with a large exporting sector, such internationalization in terms of their effects on
as Germany, IPO firms will be more internationally
growth. All the explanatory variables were tested
diversified than those in the UK Therefore, to for endogeneity using the Wu-Hausman procedure
account for institutional factors related to country (Greene, 2003; Hausman, 1978; Wu, 1973). For
of origin we use three country dummies for the UK, the model to be unbiased and consistent, we
Germany and France, using Italy as the control. replaced both the Intangible assets/sales and
Leverage variables with instruments, which were
EmpiricalMethodology their lagged values. In addition, the R&D/sales and
The theoretical relationshipsoutlined above are International sales/sales variables are lagged 1 year
based on the between when on the
interrelationship R&D, they appear right-hand side in the
internationalization and growth, as well as on the third equation.
antecedent effects of intangible assets and capital The system is specified in Eqs. (1) to (3):
structure on R&D. These are to be determined
jointly, and therefore we model these associations =
R&D/Salesf
as a system of simultaneous equations using STATA.
This approach allows examination of the way in F[Constant; Intangible assests/sales^; Leveraget _i;
which R&D undertaken by firms contributes to International sales/total sales^; Country dummies;
international business activity, which in turn
Firm aget; Years post IPOt; Capital
contributes to overall
sales growth. This system of expenditure/salesi;
SEO
equations is structured explicitly as a causal chain, dummyt;Market capitalization ;Industrydummies]
introduced byWold (1954) and used in a number of (i)
Piesse_
1269
International sales/total salest unbalanced panel data, and we follow his empirical
= The dynamics of the relationships
F[Constant; Intangible assets/salest_i; methodology.
between R&D, internationalization and growth is
Leveraget x;R&D/salest_x;Country dummies;
captured through a specific lag structure in our
Firm aget; Years post IPOt; Capital expenditure/salesf;
system of equations outlined above. In addition, to
SEO dummyt;Market capitalization^; Industry dummies]
capture time-related dynamics of our variables of
(2) interest, we include the Years post IPO variable in all
three equations. The signs of the estimated coeffi
Sales growtht
=
F[Constant; Intangible assets/salesf_i; cients on this variable indicate the direction of
Leverage^; R&D/salest_x; International sales/total salest_i; changes in R&D, exporting and growth as firms
xInternational sales/total salest_i;
move further from the date of their IPO.
R&D/sales^
Country dummies; Firm agef; Years post IPOt; Another potential problem is related to autocor
relation in the disturbances. We followed Greene
Capital expenditure/salest; SEO dummyt;
Market capitalization^ Industrydummies] (3) (2003), who suggests that, for a system of equa
tions, each equation is first estimated by ordinary
least squares. These are then corrected using the
In the estimation we use
panel data analysis, Prais-Winsten transformation to remove the auto
which has
several advantages. First, it is possible to correlation. The transformed data are then esti
control for firm-level heterogeneity, thus avoiding mated using feasible least squares. We
generalized
biased results. Second, there is more information, did the first step and found that the difference in
less collinearity and greater efficiency in the the Durbin-Watson statistics before and after the
estimates. Most importantly, the dynamics of Prais-Winsten transformation were not signifi
can be and this paper is
adjustment investigated, cantly different from zero for all equations. Auto
concerned with multiple firm activities and their correlated disturbances without lagged dependent
interconnections in the period following the IPO. variables do not produce biased estimators, as is the
In our sample of IPO firms, however, the major case with our system of equations.
econometric challenge is associated with an unba
lanced nature of the data, which is due to the RESULTS
random start dates
(e.g., the actual listing dates for Table 1 reports the descriptive statistics for the
individual firms), and in some cases attrition variables used in the analysis, the results of the
following listing, making it different from a truly t-tests for the difference in means between each
For this we cannot
contemporaneous panel. reason, country with respect to the UK, and the matrix of
use time dummies for individual years, as this is correlation coefficients.
already included in the Years post IPO variable. As this table shows, newly listed firms in the UK are
Using dummies for firm effects is impractical in
relatively larger than their European peers, and they
terms of degrees of freedom, particularly in such a have the highest level of intangible assets and capital
large data set. Thus, as part of the preliminary data expenditures to sales compared with the rest of the
analysis, the individual equations were estimated sample. UK IPOs are significantly more R&D inten
standard data econometric more
singly, using panel sive, and also likely to return to the capital
techniques. These results showed that the random market with secondary equity offerings. However,
effects model was preferred to the fixed effects firms have relatively higher export inten
European
model, with selection by the Hausman
determined sity than UK IPOs, with German firms having the
(1978) specification test, which confirms the appro highest level of export intensity (almost 50%). Table 1
priateness of the random-effects estimator. There also shows that the correlation coefficients for sales
fore the system of equations that constitute the growth with R&D and export intensity variables are
causal chain was estimated using three-stage least positive, but at low levels of significance. However,
squares (3SLS) adapted for an unbalanced panel there is a positive and significant correlation between
data and using the information on the random R&D and export intensities.
effects model gained in the preliminary regres Table 2 reports the estimated coefficients for the
sions.2 There is support in the literature for this causal chain model. The regression results generally
combination ofmethods: for example,
Biorn (2004) support our hypotheses with respect to the inter
discusses the advantages of estimating a system of between R&D, export orientation and
relationships
equations with random individual effects from growth. In we found a
particular, strongly significant
dev.
Std
Italy
Mean*
dev.
Std
Cermany
Mean*
10 Age 11.402 dev.

Std
4.11 1.897** 1.785** 0.81 1.423** 0.77
0.85
France
9 Years post IPO 5.77 3.66

3.82
5.68 3.68 6.47** 4.39
Mean*
5 Seasoned
equityoffer
dummy
0.936 0.465
0.243
0.683** 0.526**
0.4990.635**
0.481
7 Intangibles/sales (%) 14.83 20.72
69.98 5.38** 5.65** 9 5.783.86-0.024*
12.44 -0.019-0.004 0.060**
10.59* 32.49 0.128**
0.023*
0.34***
13.13 10 6.424 -0.072**
5.65 -0.105 0.012 -0.105 0.32** 0.08* 0.02 -0.01
-0.027
6 Market capitalization dev.

Std
( m) 4.37**
5.05 1.99 4.95* 1.68 5.17* 1.61
1 Year-on-year
3sales
International
growth
sales/total
(%) sales
3.21*
5.27
(%) 0.418**
0.306
9.032.49**
0.461 0.493
6.11
0.495**
2.86**
0.50.456**
7.41 0.498
expenditure/sales (%) 4 Capital 0.683*
9.95
expenditure/sales
15.19(%) 10.82 1.81
6.81**
23.49 11.96.89**3.159.9815.191.21*
8.3711.71
8 13.48 4
0.0171.13* -0.027**3.18 0.148** 0.070** 0.215** 0.049**
18.08
UK 7 12.31 51.46 -0.019 0.035** 0.016
0.092** 0.070** 0.099**
6 4.91 1.82 .055** 0.104**
0.005 0.218**
-0.046**
-0.014
Mean
5 0.772 0.419 0.029** -0.047** 0.042**

0.020*
(%)
11.05
11.44
11.8
10.22**
debt)]
13.29
3.47**
1
14.64
debt/(equity+long-term
[long-term
11.58
8
Leverage
4 9.2118.55 0.216** -0.044**

-0.33***
Panel B Mean, standard deviation coefficients for total sample
correlation
and
aResults
of
f-tests
for
of
difference
means
for
UK/France,
UK/Germany
and
UK/Italy.
Significance
at0.1,1,and by
is
5% ***,
**and
* respectively.
3 0.017
0.005
0.382 denoted
St.
Mean
dev. 2 0.486
0.017
5.33
Table
1 Desriptiveand correlations
statistics 126.09
Panel
A statistics
Descriptive 5.15
1
Variable 3.456
definitions
R&D, internationalization and growth of IPOs IgorFilatotchevand Jenifer
Piesse
1271
Table 2 Resultsof the recursivechainmodel (3SLS regressionanalysis)
Dependent variable Eq. (1) R&D Eq. (2) International Eq. (3) Sales growth
expenditures/sales sales/total sales
Intangibleassets/sales (t-1) 0.0400*** 0.0008*** 0.0003***
(0.0083) (0.0004) (0.0000)

Leverage (t-1) -0.2082*** 0.0190*** 0.0004***
(0.0380) (0.001 7) (0.0002)

R&D expenditures/sales(t-1) 0.0044*** 0.0010***
(0.0006) (0.0001)
International sales/total sales (t-1) 2.2758*** 0.0041***
(0.2906) (0.0014)
R&D expenditures/sales(t-1) x International 0.0003*
Sales/total sales (t-1) (0.0001)

UK dummy 8.7049*** -0.7330*** -0.0105
(2.0557) (0.0901) (0.0093)

Germany dummy 1.5405 0.5228*** -0.0050
(1.3604) (0.0592) (0.0061)

Firmage at IPO -0.6595*** 0.0008 0.0014**
(0.1658) (0.0073) (0.0008)

Years after IPO -0.0733 0.0397*** -0.0019***
(0.1319) (0.0057) (0.0006)

Capital expenditure/sales 0.3594*** -0.0182*** -0.0002
(0.0339) (0.0015) (0.0002)

Seasoned equity offeringdummy 1.9753* 0.3430*** -0.0022
(1.2906) (0.0565) (0.0058)

Market capitalization -1.8198*** 0.8449*** 0.0085***
(0.3499) (0.0114) (0.0012)

dummies
Industry Yes Yes Yes
Constant 2.4780* -0.3798*** -0.0252***
(1.7883) (0.0782) (0.0081)

x2 353.11 710.42 392.44
Durbin-Watson statistic 1.96 1.79 1.82
Number of observations: 5241. Standard errors are in parentheses.

** *
Significance at 0.1, 1, and 5% is denoted by ***, and respectively.
relationship (at the 0.1% level) between R&D and provides a negative and significant effect on R&D
export intensities (Eqs. (1) and (2)). We performed intensity, in line with Hypothesis 3. In other words,
simple Granger tests to verify the direction of accumulated intangible assets (patents, know-how,
causality. These tests show that if R&D expendi etc.) and financial structure have a profound long
tures are increased by 1%, there is an expected itudinal effect on the firms' innovative capacity.
increase in international sales of 1.3%. However, if This panel data analysis supports our framework
international sales are increased by 1%, R&D that predicts that current levels of R&D intensity
expenditures increase by only 0.005%. So the much depend on trajectories of intangible assets and debt.
more powerful effect is from R&D, indicating that Finally, the results for Eq. (3) provide statistically
causality runs from R&D expenditures to interna significant links between firm growth and lagged
tionalization, and not the other way round. This R&D and export intensities (Hypotheses 4 and 5).
confirms our key argument that organizational They also indicate that growth slows down when
learning and capacity-building through R&D lead the newly listed firm matures, as indicated by a
to an increase in internationalization (Hypothesis 1). negative sign on the coefficient for the Years post
Results from Eq. (1) support our assumptions with IPO variable. In other words, these firms experience
regard to the antecedents of R&D. The Intangible the most rapid growth during the first few years
assets variable is positively associated with after flotation, and this is consistent with the
R&D intensity, supporting Hypothesis 2. Leverage organizational life cycle framework (Penrose, 1959).
* _R&D, internationalization and growth of IPOs_Igor Filatotchevand jeniferPiesse
1272
Equation (3) also provides a positive and signifi DISCUSSION

cant coefficient for the interaction between R&D Flotation represents a critical juncture in the life of a
and export intensities. It seems as though the two firm that has substantial growth opportunities
strategies complement each other in terms of their (Certo et al., 2001). A better understanding of the
effects on growth, which is consistent with the growth dynamics after IPO provides a significant
assumption of co-evolution between internationa contribution both to the development of equity
lization and learning through R&D suggested by financing and to the promotion of entrepreneurial
previous research on international entrepreneurship and venture capital activities across Europe. Our
(e.g., Autio et al., 2000, Sapienza et al., 2006; Zahra study is one of the first to examine the links between
et al., 2000). post-flotation R&D, exporting and growth of newly
In terms of control variables, R&D has a positive listed firms. Our analysis supports a capability-based
relationship with capital expenditures (Eq. (1)). view of internationalization (Autio et al., 2000;
This is consistent with the assumptions that IPO Sapienza et al, 2006), which suggests that inter
may tryto build theircapabilities by both the
firms nationalization decisions of newly listed firms are
expansion of physical assets and by innovation. driven, ceteris paribus, by their ability to invest in
The proportion of capital expenditures to sales has knowledge development and innovation that aim to
a negative effect on exporting, but its overall effect expand their growth potential. Moreover, our find
on growth is insignificant. The period after the IPO ings show that R&D and export orientation seem to
has a positive effect on exporting, and exporting be mutually enforcing in terms of their combined
activities of newly listed firms increase when they effect on growth. We develop further international
mature, as reflected in sign of the regression entrepreneurship research by providing evidence
coefficients for our time dynamics variable (Years that the IPO firms' ability to develop R&D activities
post IPO). This may mean that newly listed firms tends to be path dependent, and it is determined by
focus mainly on developing through innovation accumulated intangible assets and financial con
around the time of their listing. However, as they straints, in line with organizational imprint research
grow and develop, newly listed firms shift their (Hannan, 1998; Stinchcombe, 1965). To our knowl
focus to exporting. This is also consistent with our edge, this is the
first paper that addresses these
findings that bigger and older firms are less R&D interrelationships between innovation, internatio
intensive,but they have higher export sales. nalization and growth within the context of the
Further, R&D and exporting are also positively strategic dynamics of IPO firms using a longitudinal,
associated with secondary equity issues, indicating multi-industry and multi-country data set.
that the two strategies may be determined by This study also contributes to the international
subsequent financing decisions following the IPO. entrepreneurship literature by considering the links
The manufacturing sector dummy is positively and between R&D, internationalization and growth in
different national we focus
significantly associated with R&D intensity, in line settings. Although
with previous studies (Filatotchev, Piga, & Demina, specifically on four European countries, variations
2003). We also found strong evidence of country in institutional, finance and governance regimes
of-origin effects on growth strategies. More specifi (La Porta et al., 1997, 1999; Thomsen & Pedersen,
cally, the UK firms have relatively high R&D 2000) suggest scope for international analyses of
intensity and lower export intensity compared with the links between strategic options and growth of
the control group of Italian and French IPOs. On the newly listed firms (Sapienza et al., 2006). More
other hand, German IPOs are more likely to have specifically, we found that R&D intensity is strongly
high export sales compared with the control group. associated with growth, but this link seems to be
Finally, to test for possible reverse causality particularly significant in the UK
economy, which
effects, we included lagged sales growth in Eq. (1) has a large and active capital market and venture
(R&D lagged sales growth in Eq. (2)
and capital industry supported by a developed institu
regression)
(exporting regression). This regression analysis (not tional infrastructure (Levine & Zervos, 1998). On
on request) the other hand, we have found evidence of
reported here but available indicated
that all additional regressors were insignificant, and significant exporting effects on growth in the four
their inclusion reduces the explanatory power of economies, in line with previous research on
the simultaneous equation model. Therefore we are international entrepreneurship in single-country
confident that the direction of causality imposed in settings such as Finland (Autio et al., 2000) and
our model is the correct one. the US (Zahra et al., 2000).
_R&D, internationalization and growth of IPOs IgorFilatotchevand jeniferPiesse_
1273
Our findings may of course reflect the particular Strategie management research recognizes that
circumstances of IPO firms, whose market environ strategic choices may have different resource and
ment has been very different from that of mature risk implications for the firm that affect managerial
firms and entrepreneurial start-ups. Indeed, our preferences (Filatotchev et al.; 2001; Hitt et al.,
regression results clearly indicate that growth 1997). Therefore, within an international entrepre
declines with time after the IPO. International neurship framework, it is important to "address the
entrepreneurship research
suggests that, as firms timing of capability development and its perfor
get older, they may develop learning impediments, mance consequences" (Sapienza et al., 2006: 915).
such as embeddedness in old routines and struct Our analysis shows that firms with substantial
ural inertia (Autio et al., 2000). As a result, they intangible resources and lower levels of debt are
"can be trapped by their competence" (Hannan, more likely to invest in R&D first, and then leverage
1998: p. 134) when their environment is changing. their capabilities through internationalization at a
If so, export-driven growth may prove to be a later stage. On the other hand, firms with few
transient phenomenon, and as the IPO firms intangible assets and high levels of debt seem to put
mature, a joint action of strategic inertia and more emphasis on the exploitation strategy
environmental change may create what Hannan through international expansion right after flota
(1998: 129) calls "a liability of adolescence." Never tion. Therefore an integration of international
theless, our results provide strong evidence that, at entrepreneurship and strategic choice research
least in the early stages of development, the effect provides a novel theoretical advance that may
of internationalization on growth of the newly have important implications for our understanding
listed firm is significant, regardless of country of of the internationalization dynamics of fast
origin. From a managerial perspective, it is impor growing firms.
tant to know whether the "liability of adolescence" In a dynamic perspective, R&D intensity is at its
affects all IPO firms regardless of their strategies, highest level just after the float, whereas export
industry affiliation, etc., or whether some firms are intensity increases as IPO firms mature. This
able to escape
this "competence trap." Our frame strategic "switch" seems to be related to the
work strongly points out that continuous innova different effects of capability development and
tion fuels both international expansion and financial constraints on the choices of strategic
growth, and future research should focus on options. From the international entrepreneurship
organizational characteristics and processes that perspective, one possible interpretation of these
encourage sustainable innovation all the way along important results is that an IPO provides a sig
the IPO firm's life cycle. nificant boost to the firm's capabilities associated
Our analysis of time-related aspects of the devel with the development of knowledge exploration
opment of R&D and internationalization and their through innovation. As newly listed firms mature
effects on growth also points out a need to integrate and improve their positional advantages (Sapienza
international entrepreneurship research with a et al., 2006) they may shift their strategic focus on
strategic choice perspective (Hitt, Hoskisson, & exploiting their knowledge-related capabilities by
Kim, 1997; Hoskisson et al., 1994). Among other leveraging them across different national markets
reasons, flotation is driven by the desire to obtain (Autio et al., 2000; Carpenter et al., 2003).
resources to fund future growth. However, our Finally, our findings may have important impli
analysis clearly shows that the way firms invest cations for entrepreneurs and IPO investors. Tradi
these resources in various growth strategies tionally, an IPO has been viewed as a pure financing
depends not only on their anticipation of growth choice or a natural end-state for successful entre
opportunities but also on the previous accumula preneurial companies. Our analysis provides a
tion of intangible assets and
changes in capital more complex picture, which suggests that an IPO
structure. Our empirical finding that accumulated triggers the dynamic process of innovation, inter
intangible assets, previous capital investment and nationalization and growth. It also indicates that,
leverage have opposite effects on R&D and export other things being equal, IPO firmsmay be limited
ing intensities is particularly interesting. Some in their choice of strategic growth options by their
authors suggest that the development of interna path-dependent conditions at the time of listing.
tional activities is a risky and investment-intensive Therefore, rather than evaluating the costs and
process that may drain limited resources and reduce benefits of going public in isolation, managers
the firm's chances of survival (Dunning, 1993). and IPO investors need to account for a broader
Piesse
1274
set of considerations, including not only growth framework linking innovation, internationalization
opportunities but also past innovation strategies and growth of the IPO firm, it paves the way for
and existing financial constraints on managers' further studies on organizational processes and
strategic choices. dynamics that may use different research methods,
such as
interviews, case studies or customized
LIMITATIONS AND FUTURE RESEARCH surveys. Case studies and survey-based analysis
Our study has limitations that can be addressed in allows researchers to develop more specific proxies
future research. First, our focus is primarily on R&D based on managerial evaluations and perceptional
as an antecedent factor of internationalization ratings for various learning-related factors, such
and growth, and our model does not account for as knowledge intensity (e.g., Autio et al., 2000) and
all possible drivers of the internationalization knowledge development and integration (e.g.,
strategies of IPO firms. Indeed, such a model would Zahra et al., 2000).
be exceedingly complex, and would go beyond the Third, this study is focused on the exporting strategy
scope of a single paper (Sapienza et al., 2006). that is used by newly listed firms to capture their
Instead, we focus on some key contingencies in the growth opportunities. Further studies using different
emerging on
literature strategic dynamics and national groups of firms and a broader range of
internationalization of fast-growing firms that strategies would help with validation of our theore
may help in "understanding the flow of strategy tical framework, and might provide further insights
from leveraging the past to probing the future" into the growth dynamics of IPO firms, as well as into
(Eisenhardt & Martin, 2000: 1118). how growth strategies differ internationally.
Second, our database includes archival, company
level data obtained from companies listing docu CONCLUSIONS
ments and annual over a period of time This an important contribution to
reports study makes
after the float. This approach has several advantages a better of the interrela
developing understanding
compared with survey-based studies, because tionships between the post-flotation R&D efforts,
internationalization and growth of newly listed firms
(1) we were able to obtain data on all IPOs since
in four European countries. It not only identifies
1985, avoiding, therefore, a non-response bias
data problems associated with R&D investment and exporting as two important
and missing
drivers of growth but also provides new insights into
survey research;
the dynamic co-evolution of growth strategies. In
(2) all data in listing documents and annual reports
were audited, which makes itmore reliable and line with international business research, this study
consistent also confirms that national cultures and institutional

than survey data; and
archival data allowed us to develop a contexts may provide strong moderating effects on
(3) using
set a the innovation-internationalization-performance
longitudinal data that included substantial
number of company-years. relationships (Aulakh et al, 2000). Further multi
country studies of newly listed public companies will
Using panel data methods in a simultaneous take full account of these factors.
system of equations represents an advance com
pared with previous research by providing an ACKNOWLEDGEMENTS
opportunity to model dynamic causal links An earlier version of this paper was presented at the
between accumulated intangible assets, R&D, inter 2006 Academy of Management Conference (Atlanta,
on
nationalization and growth, and here we see an USA) and Annual Conference Corporate Strategy
important contribution of our study (Lane et al., (Berlin, May 2006). We are grateful to Mike Wright,
2006). However, our underlying theoretical Keith Brouthers, Arie Lewin, Salim Chahine, Erkko
assumptions are related to important organiza Autio, Ron Smith, Ruth Aguilera, Torben Pedersen,
tional processes, and there are limits to the extent Witold Henisz (the Editor) and four anonymous
to which they can be approximated by outcome referees for their insightful comments. We thank
variables, such as R&D intensity or intangible George Dampare for the data.
assets. For example, Autio et al. (2000) discuss
potential limitations of using objective indicators NOTES
1
of innovation intensity such as R&D expenditures Firms should also make sure these returns will
and patents. Nevertheless, by developing and compensate for liabilities of "foreignness" and other
supporting empirically a general contingency costs associated with an entry into foreign markets.
_R&D, internationalization and growth of IPOs_Igor Filatotchevand Jenifer
Piesse_
1275
2Seemingly unrelated estimation (SURE) would have but the non-zero off-diagonal elements in the covariance
been adequate ifthe causal chain was truly recursive, matrix require a three-stage least squares approach.
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ABOUT THE AUTHORS
McDougall, entrepre
neurship: The intersection of two research paths. Academy of Igor Filatotchev (igor.filatotchev@city.ac.uk) is
Management Journal,43(5): 902-906. Professor of Corporate Governance and Strategy at
McDougall, P. P., & Oviatt, B. M. 2000. New venture
and performance: A
Cass Business School, London. He received his PhD
internationalization, strategic change,
follow-up study. Journal of Business Venturing, 11(1): 34-40. in Economics from the Institute ofWorld Economy
W. C, & Weiss, K. A. 1991. Venture and
Megginson, capitalist International Relations (Moscow). His research
certificationin initialpublic offerings.Journalof Finance,46(3):
879-893. examines corporate governance and strategic
Myers, S. C. 1977. Determinants of corporate borrowing. Journal decisions, and has been published in Academy of
of FinancialEconomics,5(2): 147-1 75.
Management Journal, Strategic Management Journal,
Pagano, M., Panetta, F., & Zingales, L. 1998. Why do companies
go public? An empirical analysis. Journalof Finance, 53(1): Organization Science, Journal of Management and
27-64.
Journal of International Business Studies. Born in
Pedersen, T., & Thomsen, S. 1997. patterns of
is currently a UK citizen.
A twelve
European
Russia, he
corporate ownership: country study. Journal of
International Business Studies, 28(4): 759-778.
Penrose, E. 1959. The theory of the growth of the firm. London:
Jenifer Piesse (jenifer.piesse@kcl.ac.uk) is Professor
Basil Blackwell.
of International Business at King's College London
Phillips, D. J. 2002. A genealogical approach to organizational
life chances: The parent-progeny transfer among Silicon Valley and a visiting Professor at University of Stellen
law firms1946-1996. Administrative
Science Quarterly,47(3):
bosch, South Africa. She has a PhD in Economics
474-506.
S. D. 1990. Institutional investment and
from the University of London. Her research
Prowse, patterns
corporate financial behavior in the United States and Japan. interests include corporate governance, productivity
Journal of Financial Economics, 27(1): 43-66. measurement and international financial systems,
Rajan, R. G., & Zingales, L. 1995. What do we know about
structure? Some evidence from international data. particularly with respect to developing economies.
capital
Journalof Finance,50(5): 1421-1460. She was born and lives in London, UK.
Accepted by Torben Pedersen, Former Editor, and Witold Henisz, Area Editor, 23 December 2008. This paper has been with the authors for four revisions.

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R&D, Internationalization and Growth of Newly Listed Firms: European Evidence

Author(s): Igor Filatotchev and Jenifer Piesse

R&D, internationalization and growth of

newly listed firms: European evidence

Journalof International Business Studies

Vahlne, 1977) and the internationalization of new Lopez-de-Silanes, & 1999;

Journalof International Business Studies

Intangible Carpenter et al., 2003). We expect, therefore, that

Journalof International Business Studies

journal of International Business Studies

journal of International Business Studies

Journalof International Business Studies

Journalof International Business Studies

To account for post-flotation dynamics, we used applications in management and economics

Journalof International Business Studies

Journalof International Business Studies

10 Age 11.402 dev.

9 Years post IPO 5.77 3.66

6 Market capitalization dev.

5 0.772 0.419 0.029** -0.047** 0.042**

4 9.2118.55 0.216** -0.044**

Panel B Mean, standard deviation coefficients for total sample

Table 2 Resultsof the recursivechainmodel (3SLS regressionanalysis)

Intangibleassets/sales (t-1) 0.0400*** 0.0008*** 0.0003***

(0.0083) (0.0004) (0.0000)

(0.0380) (0.001 7) (0.0002)

R&D expenditures/sales(t-1) x International 0.0003*

Sales/total sales (t-1) (0.0001)

(2.0557) (0.0901) (0.0093)

(1.3604) (0.0592) (0.0061)

(0.1658) (0.0073) (0.0008)

(0.1319) (0.0057) (0.0006)

(0.0339) (0.0015) (0.0002)

(1.2906) (0.0565) (0.0058)

(0.3499) (0.0114) (0.0012)

(1.7883) (0.0782) (0.0081)

Number of observations: 5241. Standard errors are in parentheses.

Journalof International Business Studies

Equation (3) also provides a positive and signifi DISCUSSION

Journalof International Business Studies

journal of International Business Studies

consistent also confirms that national cultures and institutional

Journalof International Business Studies

Deeds, D. L., DeCarolis, D., & Coombs, J. 1998. Firm-specific

Journalof International Business Studies

journal of International Business Studies

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5 0.772 0.419 0.029 -0.047 0.042**

4 9.2118.55 0.216 -0.044

Intangibleassets/sales (t-1) 0.0400* 0.0008* 0.0003***