Excess Commitment in R&D
Year: 2026
Type: article
Abstract: We document that firms exhibit “excess” commitment to R&D projects and examine its consequences for innovation outcomes. Using detailed data on pharmaceutical firms’ clinical trial projects, we find that trial delays, empirically uncorrelated with multiple project-quality measures, substantially reduce firms’ subsequent project-termination propensity. This result remains robust when we use variation in clinical trial site congestion to instrument for unexpected delays. Excess commitment intensifies when CEO compensation has greater stock-price sensitivity and the CEO is responsible for the project’s initiation. Our findings have broader implications: delay-driven commitment reduces new drug project initiations, with further evidence suggesting efficiency losses for firms.
Source: Review of Financial Studies
DOI: 10.1093/rfs/hhag026
Authors: Marius Guenzel, Tong Liu
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $4,028
OpenAlex ID: W7140677917