Innovation and Firm Growth over the Business Cycle
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Date
2016-10
Publication Type
Working Paper
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yes
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Abstract
This paper investigates how the macroeconomic business cycle impacts the empirical relation between firms’ innovations and their sales growth rates. Based on firm-level panel data over the time period 1995-2014, the paper finds no visible sales growth differentials between firms in booming economic environments. In the economically difficult times of recessions, by contrast, innovative firms show significantly higher sales growth rates than non-innovative firms. This finding is in line with Schumpeter’s (1939) business cycle theory, where recessions play an important role in the adaptation of the economy towards innovative products and processes. Moreover, the paper shows that small innovative firms, profiting from their higher organizational flexibility and stronger entrepreneurial commitment, are the main beneficiaries in this adaption process.
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Volume
413
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KOF Swiss Economic Institute, ETH Zurich
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Subject
BUSINESS DEVELOPMENT + COMPANY DEVELOPMENT; Firm growth; Business cycle; INNOVATION + MODERNISIERUNG; Innovation; UNTERNEHMENSGROESSE + BETRIEBSGROESSE; BUSINESS CYCLE; COMPANY SIZE + FIRM SIZE; INNOVATION + MODERNIZATION; UNTERNEHMENSENTWICKLUNG; Firm size; KONJUNKTURZYKLUS
Organisational unit
02525 - KOF Konjunkturforschungsstelle / KOF Swiss Economic Institute
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