Abstract: Based on two datasets, in which one is city level data published by National Bureau of Statistics of China and the other is firm level data collected in Hangzhou City, this paper carries out empirical analysis on the economies of scale issue and impact of R&D on firm performance in software industry in China. The results reveal that firm size has consistent positive impact on productivity, but no significant influence on profitability. As to the impact of R&D on firm performance, it is found that R&D intensity has significant negative on profitability, and on productivity to a certain extent. Finally, the policy implication of these findings is discussed and concluded.

Key words: software industry, R&D, firm size, performance