Abstract
A new data base measuring company-level innovative activity is used to test how firm growth, profitability, size, and R&D intensity influence subsequent innovative activity. While R&D intensity is found to promote subsequent innovations, and smaller firms are identified as being more conducive to innovation activity than are larger firms, we find that the effect of company growth and profitability on subsequent innovation depends on the technological-opportunity environment. Profitability is found to promote subsequent innovative activity for firms in high-technological-opportunity industries but not in low-technological-opportunity industries. By contrast, high growth generates more innovative activity for firms in low-technological-opportunity industries, but not in high-technological-opportunity environments.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Acs, Z. J. and Audretsch, D. B. (1987) ‘Innovation, Market Structure and Firm Size’,Review of Economics and Statistics,69, 567–575.
Acs, Z. J. and Audretsch, D. B. (1988) ‘Innovation in Large and Small Firms: An Empirical Analysis’,American Economic Review,78, 678–690.
Acs, Z. J. and Audretsch, D. B. (1990)Innovation and Small Firms, Cambridge, MA, MIT Press.
Audretsch, D. B. (1995)Innovation and Industry Evolution, Cambridge MA, MIT Press.
Baldwin, W. L. and Scott, J. T. (1987)Market Structure and Technological Change. London and New York, Harwood Academic Publishers.
Branch, B. (1974) ‘Research and Development Activity and Profitability: A Distributed Lag Analysis’,Journal of Political Economy,82, 999–1011.
Cohen, W. M. and Levin, R.C. (1989) ‘Empirical Studies of Innovation and Market Structure’, In: R. Schmalensee and R. Willig (eds.),Handbook of Industrial Organization, vol. II. Amsterdam: North-Holland.
Cooper, A. C. (1964) ‘Research and Development is More Effieicint in Small Companies’,Harvard Business Review,42, 75–83.
Edwards, K. L. and Gordon, T. J. (1984)Characterization of Innovations Introduced on the U.S. Market in 1982. The Futures Group, prepared for the U.S. Small Business Administration under contract no. SBA-6050-0A-82.
Grabowski, H. G. (1968) ‘The Determinants of Industrial Research and Development: A Study of the Chemical, Drug, and Petroleum Industries’,Journal of Political Economy,76, 292–306.
Hambrick, D. C. and MacMillan, I. C. (1985) ‘Efficiency of Product R&D in Business Units: The Role of Strategic Context’,Academy of Management Journal,27, 527–547.
Lee, T. H., Fisher, J. C., and Yau, T. S. (1986) ‘Is your R&D on Track?’,Harvard Business Review,64, 34–44.
Mansfield, E. (1968)Industrial Research and Technological Change. New York: W. W. Norton.
Mueller, D. C. (1967) ‘The Firm Decision Process: An Econometric Investigation’,Journal of Political Economy,81, 58–87.
Rothwell, R. (1989) ‘Small Firms, Innovation and Industrial Change’,Small Business Economics,1, 51–64.
Scherer, F. M. (1965) ‘Firm Size, Market Structure, Opportunity and The-Output of Patented Inventions’,American Economic Review,55, 1097–1125.
Scherer, F. M. (1980)Industrial Market Structure and Economic Performance, (2nd ed.), Chicago, Rand McNally.
Scherer, F. M. (1991) ‘Changing Perspectives on the Firm Size Problem’, in: Z. J. Acs and D. B. Audretsch (eds.),Innovation and Technological Change: An International Comparison. Ann Arbor, University of Michigan Press.
Schmitt, R. W. (1985) ‘Successful Corporate R&D’,Harvard Business Review,63, 124–128.
Author information
Authors and Affiliations
Additional information
I would like to thank an anonymous referee for useful suggestions and Sigrid Raasch and Jiangping Yang for their computational assistance. All errors and omissions remain my responsibility.
Rights and permissions
About this article
Cite this article
Audretsch, D.B. Firm profitability, growth, and innovation. Rev Ind Organ 10, 579–588 (1995). https://doi.org/10.1007/BF01026883
Issue Date:
DOI: https://doi.org/10.1007/BF01026883