Innovation and Firm Growth over the Business Cycle

Andrin Spescha () and Martin Wörter ()
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Andrin Spescha: KOF Swiss Economic Institute, ETH Zurich, Switzerland
Martin Wörter: KOF Swiss Economic Institute, ETH Zurich, Switzerland
Authors registered in the RePEc Author Service: Martin Woerter

No 16-413, KOF Working papers from KOF Swiss Economic Institute, ETH Zurich

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.

Keywords: Innovation; Firm growth; Business cycle; Firm size (search for similar items in EconPapers)
Pages: 31 pages
Date: 2016-10
New Economics Papers: this item is included in nep-bec, nep-cse, nep-ent, nep-ino, nep-mac and nep-sbm
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http://dx.doi.org/10.3929/ethz-a-010726288 (application/pdf)

Related works:
Journal Article: Innovation and firm growth over the business cycle (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:kof:wpskof:16-413

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