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Good Times, Bad Times: Innovation and Survival over the Business Cycle

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  • Elena Cefis
  • Orietta Marsili

Abstract

High-potential new ventures are a source of economic growth, which policy makers call upon in times of crisis when entrepreneurship is seen as a remedy to economic downturn. Yet at these times new ventures face intensified selection, and survival hinges on heterogeneous capabilities. We examine how the innovative capabilities of new firms created in the Netherlands in 2001-2006, affected their survival likelihood before, during and after the 2007-2008 global financial crisis. We estimate a piecewise exponential model linking survival times, observed in the time period from 2001 to 2015, to longitudinal innovation data from the CIS. Our results show that new ventures innovating within two years from founding benefit of a long-term adaptive survival premium during and after the crisis. This premium and its duration over the stages of the crisis are contingent to the form of innovation: technological innovations entail a more effective and enduring premium, as compared to managerial innovations, which can be even detrimental for survival. Our study has implications for entrepreneurial management, by highlighting how the development of innovative capabilities at founding, lays the foundations for organisational adaptation and resilience in the longer term. Furthermore, our results can inform a policy approach that aims at sheltering from the storm of a financial crisis, those new ventures that do possess the specific and necessary adaptive capabilities, but that are also vulnerable because of the liabilities of newness and smallness. Such an approach could help to maintain alive the process of entrepreneurial experimentation during the crisis, and to boost economic recovery, without dispersing precious resources.

Suggested Citation

  • Elena Cefis & Orietta Marsili, 2018. "Good Times, Bad Times: Innovation and Survival over the Business Cycle," LEM Papers Series 2018/02, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  • Handle: RePEc:ssa:lemwps:2018/02
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    Cited by:

    1. Mehmet Ugur & Marco Vivarelli, 2021. "Innovation, firm survival and productivity: the state of the art," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 30(5), pages 433-467, July.
    2. Mehmet Ugur & Marco Vivarelli, 2020. "Technology, industrial dynamics and productivity: a critical survey," DISCE - Quaderni del Dipartimento di Politica Economica dipe0011, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    3. Diego Useche & Sophie Pommet, 2021. "Where do we go? VC firm heterogeneity and the exit routes of newly listed high-tech firms," Small Business Economics, Springer, vol. 57(3), pages 1339-1359, October.
    4. Cefis, Elena & Bartoloni, Eleonora & Bonati, Marco, 2020. "Show me how to live: Firms' financial conditions and innovation during the crisis," Structural Change and Economic Dynamics, Elsevier, vol. 52(C), pages 63-81.
    5. Ugur, Mehmet & Vivarelli, Marco, 2020. "The role of innovation in industrial dynamics and productivity growth: a survey of the literature," MERIT Working Papers 2020-038, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    6. Diego Useche & Sophie Pommet, 0. "Where do we go? VC firm heterogeneity and the exit routes of newly listed high-tech firms," Small Business Economics, Springer, vol. 0, pages 1-21.
    7. Eleonora Bartoloni & Alessandro Arrighetti & Fabio Landini, 2021. "Recession and firm survival: is selection based on cleansing or skill accumulation?," Small Business Economics, Springer, vol. 57(4), pages 1893-1914, December.

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    More about this item

    Keywords

    firm survival; environmental jolts; financial crisis; organisational adaptation; technological and non-technological innovation;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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