Title: Innovation strategy by firms: do innovative firms grow more?

Authors: Pedro De Faria, Joana Mendonca

Addresses: Department of Innovation Management and Strategy, Faculty of Economics and Business, University of Groningen, Nettelbosje 2, 9747 AE Groningen, The Netherlands. ' Centre for Innovation, Technology and Policy Research, Instituto Superior Tecnico, Technical University of Lisbon, Av. Rovisco Pais, Pav. Mecanica II – IN+ 1049-001 Lisboa, Portugal

Abstract: Linking innovation with firms| growth and performance is still a challenge for research. It is difficult to observe the effect of new products and processes on firms| performance, because it may take a long time between innovation and the economic gain of firms. This paper intends to address this challenge and look at the relationship between innovation and firm performance, distinguishing product and process innovation. We join two different databases: the third Community Innovation Survey (CIS III) survey and the Portuguese Quadros de Pessoal. We observe an impact of innovation activities in performance gains three years later. This effect is observed only for small firms (less than 50 employees), and it is stronger for newer firms, thus leading to conclude that innovation activities may be a source of competitive advantage, especially for new firms.

Keywords: company performance; community innovation; surveys; matched data; innovation strategies; innovative firms; business growth; new products; new processes; economic gain; process innovation; product innovation; Portugal; competitive advantage; new firms; small and medium-sized enterprises; SMEs; entrepreneurs; entrepreneurship.

DOI: 10.1504/IJESB.2011.038535

International Journal of Entrepreneurship and Small Business, 2011 Vol.12 No.2, pp.173 - 184

Available online: 10 Feb 2011 *

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