Innovation and the determinants of company survival

Although many companies compete through the development of new technologies and products, it is well known that innovation is inherently risky and therefore may increase the ex ante likelihood of both exceptional company performance and bankruptcy. However, existing empirical studies consistently fi...

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Bibliographic Details
Published in:Oxford economic papers 2010-04, Vol.62 (2), p.261-285
Main Authors: Buddelmeyer, Hielke, Jensen, Paul H., Webster, Elizabeth
Format: Article
Language:English
Subjects:
Australia
Business innovation
Business structures
Business studies
C41
Capital investments
Correlation analysis
Economic models
Economic performance
Financial investments
Firm value
Innovation diffusion
Innovations
Inventions
L10
New technology
O31
Patent applications
Product innovation
Research and development
Studies
Subsidiary companies
Technological innovation
Technology assessment
Trade
Uncertainty
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Summary:Although many companies compete through the development of new technologies and products, it is well known that innovation is inherently risky and therefore may increase the ex ante likelihood of both exceptional company performance and bankruptcy. However, existing empirical studies consistently find a positive relationship between innovative activity and company survival. We argue that this conclusion may be a result of a simple selection effect caused by the degree of uncertainty embodied in the innovation proxies used. Using a panel of almost 300,000 Australian companies, we estimate a piecewise-constant exponential hazard rate model to examine the relationship between innovation and company survival. As expected, we find that the degree of uncertainty embodied in different innovation proxies does shape the pattern of company survival.
ISSN:0030-7653
1464-3812
DOI:10.1093/oep/gpp012