How does basic research improve innovation performance in the world’s major pharmaceutical firms?

Employing a panel (1995–2015) of large R&D spending pharmaceutical firms, we investigate how internal basic research increases firm’s innovative performance. We disentangle two mechanisms through which affects technology development: (1) as strengthening the absorptive capacity to build on externally conducted science, and (2) direct source innovation. find that positive relationship between innovation performance is significantly mediated by these mechanisms, with mechanism relatively more important. The mediation relationships are pronounced in recent years, increasing importance. This pattern associated decline corporate investments over time, suggests firms have adopted judicious targeted approach aimed at getting leverage out smaller commitment research.