Innovation, firm profitability and growth

Svein Nås and Ari Leppãlahti

No 199701, STEP Report series from The STEP Group, Studies in technology, innovation and economic policy

Abstract: This study explores relationships between innovative activity, profitability and firm growth in Norwegian industry. It is based on a dataset which merges information from the Norwegian Innovation Survey (that is, the Norwegian component of the Community Innovation Survey 1992) with accounting data for a panel of firms for the period 1990 (91) to 1994. This allows us to look at profitability and growth over time in firms engaged in innovative activity in the year 1992, or in firms that introduced new products in the period 1990-92. It also allows for comparisons with firms not involved with innovation in this period. Finally, we can investigate whether profitability in the year preceding our registration of innovative activity seems to have had any effect on the occurrence or level of innovation. In doing this, we address a central issue in innovation studies, namely the effects of innovation on firm performance. Does it pay off to become involved in innovative activity? What forms do the benefits of innovation take - does innovation enhance short-run profitability, or does it contribute to firm growth, or both or neither?

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