© 2015 Elsevier Ltd. All rights reserved. We review empirical findings on the determination of R&D and R&D performance, as well as key questions that remain unaddressed. This article briefly considers the Schumpeterian hypotheses relating innovation to market structure and firm size, and considers in more depth the role of firm characteristics and industry-level variables - broadly characterized as reflecting demand, technological opportunity, and demand conditions - in affecting firms' innovative activity and performance.