Firms' Response to Peer Behaviour

Neicu, Daniel; Kelchtermans, Stijn; Teirlinck, Peter
May 2013
Proceedings of the European Conference on Innovation & Entrepren;2013, p755
Conference Proceeding
This paper sets out to investigate whether firms learn from their peers with respect to managing the cost of their R&D process. In particular, we consider to what extent R&D active firms in Belgium mimic their peers' decision to adopt a newly introduced tax exemption for wages of R&D employees. Analysing time until first use of the R&D tax credit, we find significant peer effects, operating at the level of regions and sectors, on a firm's probability of accessing the R&D tax credit. Furthermore, we show that the peer effect is discontinuous: it requires a critical mass of adopting peers before there is any impact on a firm's probability of adopting the tax credit, with the peer effect further accelerating once this tipping point is crossed. Nonetheless, very high peer adoption rates have no impact on the decision of firms who have not yet adopted the measure: most of the peer influence has materialized once about a third of companies in a sector and region has adopted the tax credit.


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