The Rise of Scientific Research in Corporate America

In the interwar period, some American firms began to invest in basic scientific research. Using newly assembled firm-level data from the 1920s and 1930s, we find that companies invested in research because inventions increasingly relied on science, but American universities lagged behind both Europe and the scientific frontier. Firms close to the frontier, relying on disciplines which were underdeveloped in American academia, were likely to invest in research, especially if they were large and operated in concentrated industries (could internalize the benefits). Corporate science seems to have paid off, resulting in novel patents and high market valuations for those engaged in research.