Orietta Marsili

A matter of life and death: innovation and firm survival

This article examines the effects of innovation on survival using data on all manufacturing firms active in the Netherlands and the Community Innovation Survey. By estimating a parametric duration model, we show that firms benefit from an innovation premium that extends their life expectancy, independent of firm-specific traits such as age and size. Process innovation in particular seems to have a distinctive effect on survival. Furthermore, survival chances increase with the age and growth rate of a firm, the latter being more crucial than initial size. Finally, high intensity technology sectors are the most favorable to firms survival. Copyright 2005, Oxford University Press.

Learning, market selection and the evolution of industrial structures

Industrial economics is a rich source of ‘puzzles’ for economic theory. One of them — certainly the most discussed — regards the co-existence of firms (and plants) of different sizes, displaying rather invariant skewed distributions. Other ‘puzzles’, however, concern the sectoral specificities in industrial structures, the persistence of asymmetric corporate performances and the dynamics of entry and exit. The paper reports some preliminary results on evolutionary modeling of the links between the microeconomics of innovation, the patterns of industrial change and some observable invariances in industrial structures.First, the paper reviews a few of these empirical regularities in structures and in the patterns of change. Second, the paper discusses the achievements and limits of interpretations of the evidence based on equilibrium theories. Finally, it presents a model where these regularities are explained as emergent properties deriving from non equilibrium interactions among technologically heterogeneous firms. Moreover, simulation exercises show that also the intersectoral variety in the observed industrial structures and dynamics can be interpreted on the grounds of underlying specificities in the processes of technological learning — which is called ‘technological regimes’ — and of the processes of market interactions — i.e. ‘market regimes’.

TECHNOLOGICAL REGIMES AND SOURCES OF ENTREPRENEURSHIP

This paper concerns the technological determinants of entrepreneurial behaviour. By applying a typology of technological regimes, which describes the nature of the technological environment in which firms operate, this paper examines the sources and obstacles to entrepreneurial entry related to the process of technical change. Two major points are suggested. First, innovation in technologies of high or increasing opportunities is not always associated with entrepreneurial behaviour, but can enhance the competitive advantage of existing firms. Second, opportunities for entrepreneurship are shaped by the nature of knowledge underlying different technologies. These points are illustrated using U.S. patent statistics classified by technical field and sector of firms principal product activity. Different combinations of sources of technological entry barriers and technological opportunity are identified in science-based technologies, chemical technologies, core technologies in complex systems, product-engineering technologies and process-engineering technologies. This paper argues that such a characterisation of the dynamics of knowledge accumulation is important for interpreting the variety of dynamics of industrial competition.

The dark matter of innovation: Design and innovative performance in dutch manufacturing

Abstract This paper focuses on the impact of expenditures on design on the innovative performance of Dutch manufacturing firms. The competitive advantage of a firm often depends on its ability to innovate. Past research has shown that investments in research and development (R&D) can play a key role in stimulating innovation, yet relatively few studies have examined the impact of expenditures on design on innovative performance. Using a database containing 2010 firms from the Netherlands, this paper explores the association between expenditures on design and product innovation, highlighting the importance of the new range of ‘downstream’ innovation activities for understanding innovation performance.

'Inequality' of innovation: skewed distributions and the returns to innovation in Dutch manufacturing

It is a commonly held view that returns to innovation are highly skewed, that is, not all firms innovate, and the returns received from innovation for the firms that are successful innovators are highly concentrated in the hands of the few. Using data from two community innovation surveys for the Netherlands, this article investigates the properties of the distribution of the returns to innovation for different types of innovation. It finds that the returns to innovation are indeed highly skewed, but the distribution of the returns is shaped by the degree of novelty of the innovation – the more novel the innovation, the greater the concentration of the returns. The article also explores the distribution of the returns across different sectoral contexts, finding that low-technology sectors are characterised by higher performance diversity among innovators than high-technology sectors.

Into thin air: using a quantile regression approach to explore the relationship between R&D and innovation

Applying quantile regression to 760 Finnish firms, we show that the relationship between R&D and firm performance is less straight forward than so far assumed. OLS regression analysis fails to capture the effect of R&D expenditure at different locations on the performance distribution. We reveal that R&D matters, especially on the medium quantiles, while regressing against the upper quantiles of the economic gains from innovation distribution exhibit decreasing returns scale in R&D. Our results confirm that Gaussian statistics fail to capture the most interesting part of the distribution – namely the extreme observations located in the tails.

Stability and turbulence in the size distribution of firms: Evidence from Dutch manufacturing

Abstract This paper examines the shape of the firm size distribution over time and across sectors, using a longitudinal data set of manufacturing firms in the Netherlands in 1978–1998. Although the size distribution is highly skewed and resembles the Pareto law, a variety of patterns emerge across sectors, with the lognormal providing a better fit in some sectors. The size distribution and the underlying firm dynamics evolve over time. In the long term, the distribution has become less skewed and thinner at the tails, the slope of the Pareto law has declined, and mobility of firms at the lower tail has increased. In addition, the slope of the Pareto law tends to become steeper in correspondence with an economic recession, with peaks of mobility of firms at different size classes.

Innovation Premium and the Survival of Entrepreneurial Firms in the Netherlands

This paper examines the difference in survival probability between innovators and non-innovators (the ‘innovation premium’), for different types of firms and technological environments. In particular, we compared the innovation premiums for high-tech and low-tech manufacturing to discover whether innovation plays a different role as a strategy for survival depending on the technological environment. In addition, we analysed whether different patterns emerge when we contrast entrepreneurial firms and established firms. We estimated survival probabilities with an approach based on TPM, using data from the Business Register of the population of manufacturing firms in the Netherlands and the CIS-2. Among established firms, the highest premium in survival (whether an innovator or not) lies in being active in a high-tech sector. Thus, to increase survival probability, innovation must be complemented by firm specific organisational and commercial capabilities. For entrepreneurial firms it is crucial to either be an innovator or at least to be active in a high-tech sector; in a low-tech sector, innovative activity is a “matter of life or death”. Indeed, innovation increases the survival probability of entrepreneurial firms in low-tech sectors by 58 per cent compared to non-innovative firms. This is the highest innovation premium amongst all the categories of firms and sectors studied.

Founding a business inspired by close entrepreneurial ties: Does it matter for survival?

Founding a business may be inspired by close entrepreneurial ties, that is, business–owning relatives or friends. We analyze if and when such inspiration is associated with post–entry survival. Drawing on longitudinal data on 942 founders, we find a positive relationship only if founders start by taking over an existing business, or spend considerable time at start–up. Moreover, the impact of close tie inspiration is negative for founders with prior entrepreneurial experience, revealing a dark side to serial entrepreneurship. Our findings show that new firm survival can be better understood by modeling contingency variables.

Industry relatedness and post-acquisition innovative performance: the moderating effects of acquirer's capabilities and target size

This paper examines how characteristics of acquiring and acquired firms influence the curvilinear (inverted U-shaped) relationship between relatedness and post-acquisition innovative performance. Using a relatedness index based on industry co-occurrence in the Dutch acquisition market, we test for variations in the tipping point and curvature of the relationship. In our sample of 1,736 acquisitions, we find that acquirer’s internal R&D and acquisition experience, and the small size of acquired firms, help to reach a balance between exploration of novelty and exploitation of synergies in unrelated acquisitions, and to achieve higher post-acquisition performance. However, while the acquirer’s R&D increases flexibility in the acquisition process to deviations from an optimal level of relatedness, acquisition experience may enhance rigidities.