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Innovation, strategic renewal and its effect on small firm performance

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Author Info
Mickey Folkeringa
Andre van Stel
Joris Meijaard

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Abstract

In this paper, we investigate the relationship between strategic renewal and the performance of smaller firms (less than 100 employees). We use a panel of micro data on about 1000 Dutch firms. The dataset contains information on aspects of strategic renewal, including process innovation and knowledge management. In our regression analyses we explain the variation in firm performance and we explicitly control for reversed causality, business cycle effects, sector effects, and firm age. We find that market research, an active external network for knowledge acquisition and strategic efforts into the improvement of internal processes are positively related to turnover growth. Furthermore, codification of knowledge, cooperation with partner firms and the provision of training to employees directly relates to employment growth. The results emphasize the importance of both knowledge absorption and knowledge creation to the success of innovative efforts in small firms. We find that the impact of the various measures varies with firm size. One further notable finding is that the ownership of patents negatively impacts small firm performance, particularly for the smallest firms in our sample.

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Paper provided by Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group in its series Papers on Entrepreneurship, Growth and Public Policy with number 2005-36.

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Length: 28 pages
Date of creation: Nov 2005
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Handle: RePEc:esi:egpdis:2005-36

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Related research
Keywords: strategic renewal; growth of small firms; entrepreneurship; innovation;

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Find related papers by JEL classification:
L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes

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