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Managerial capacity in the innovation process and firm profitability



This paper studies at firm level the relation between managerial capacity in doing innovation and profitability. Moving along the intersection between the evolutionary/neo-Schumpeterian theory and the Resource-Based-View of the firm, we prove econometrically that managerial efficiency in mastering the production of innovation is an important determinant of firm innovative performance and market success, and that it complements traditional Schumpeterian drivers. By using a Stochastic Frontier Analysis, we provide a “direct” measure of innovation managerial capacity, then plugged into a profit margin equation augmented by the traditional Schumpeterian drivers of profitability (size, demand, market size and concentration, technological opportunities, etc.) and other control-variables. We run both a OLS and a series of Quantile Regressions to better stress the role played by companies’ heterogeneous response of profitability to innovative managerial capacity at different points of the distribution of the operating profit margin.Results find evidence of an average positive effect of the innovation managerial capacity on firm profitability, although quantile regressions show that this “mean effect” is mainly driven by a stronger magnitude of the effect for lower quantiles (i.e., for firms having negative or low positive profitability). It means that lower profitable firms might gain more from an increase of managerial efficiency in doing innovation than more profitable businesses.

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  • Giovanni Cerulli & Bianca Potì, 2013. "Managerial capacity in the innovation process and firm profitability," CERIS Working Paper 201301, Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY -NOW- Research Institute on Sustainable Economic Growth - Moncalieri (TO) ITALY.
  • Handle: RePEc:csc:cerisp:201301

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    References listed on IDEAS

    1. Jacques Mairesse & Pierre Mohnen, 2002. "Accounting for Innovation and Measuring Innovativeness: An Illustrative Framework and an Application," American Economic Review, American Economic Association, vol. 92(2), pages 226-230, May.
    2. Tseveen Gantumur & Andreas Stephan, 2010. "Do External Technology Acquisitions Matter for Innovative Efficiency and Productivity?," Discussion Papers of DIW Berlin 1035, DIW Berlin, German Institute for Economic Research.
    3. Giovanni Dosi & Luigi Marengo & Corrado Pasquali, 2010. "How Much Should Society Fuel the Greed of Innovators? On the Relations between Appropriability, Opportunities and Rates of Innovation," Chapters,in: The Capitalization of Knowledge, chapter 4 Edward Elgar Publishing.
    4. Crepon, B. & Duguet, E. & Mairesse, J., 1998. "Research Investment, Innovation and Productivity: An Econometric Analysis at the Firm Level," Papiers d'Economie Mathématique et Applications 98.15, Université Panthéon-Sorbonne (Paris 1).
    5. David J. TEECE, 2008. "Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy," World Scientific Book Chapters,in: The Transfer And Licensing Of Know-How And Intellectual Property Understanding the Multinational Enterprise in the Modern World, chapter 5, pages 67-87 World Scientific Publishing Co. Pte. Ltd..
    6. Richard N. Langlois, 1994. "Cognition and Capabilities: Opportunities Seized and Missed in the History of the Computer Industry," Industrial Organization 9406003, EconWPA.
    7. Giovanni Dosi & Luigi Marengo & Corrado Pasquali, 2010. "How Much Should Society Fuel the Greed of Innovators? On the Relations between Appropriability, Opportunities and Rates of Innovation," Chapters,in: The Capitalization of Knowledge, chapter 4 Edward Elgar Publishing.
    8. Bughin, J. & Jacques, J. M., 1994. "Managerial efficiency and the Schumpeterian link between size, market structure and innovation revisited," Research Policy, Elsevier, vol. 23(6), pages 653-659, November.
    9. Jennifer Percival & Brian Cozzarin, 2008. "Complementarities Affecting the Returns to Innovation," Industry and Innovation, Taylor & Francis Journals, vol. 15(4), pages 371-392.
    10. Elena Cefis & Matteo Ciccarelli, 2005. "Profit differentials and innovation," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 14(1-2), pages 43-61.
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    More about this item


    Innovation; Firm profitability; Managerial capacity; Firm capabilities; Evolutionary/Neo-Schumpeterian theory; Stochastic frontier analysis; Quantile regression;

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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