The innovation activities of small and medium-sized enterprises and their growth: quantile regression analysis and structural equation modeling
Using an augmented version of Gibrat’s law, we theorized the relationship between the innovation activities of small and medium-sized enterprises (SMEs) and their growth in sales, firm value, and research and development (R&D) investment in the following years. Based on 17 years of data from 598 SMEs in South Korea, this study examined the mediating role of sales growth and firm value growth in the relationship between innovation activities and R&D investment growth in a longitudinal setting. The study findings suggested that the innovation activities of SMEs at Time 1 influenced the sales growth of high-growth firms and high-tech sectors at Time 2 more positively than that of low-growth firms and low-tech sectors, and that SMEs consequently invested more in R&D at Time 3. However, the innovation activities of SMEs at Time 1 did not significantly affect their firm value growth at Time 2. Theoretical and managerial implications are discussed for scholars, managers, and policy makers.
KeywordsInnovation activities Firm growth R&D Quantile regression Small and medium-sized enterprises
The authors would like to thank the editor and anonymous reviewers for their considerable help in developing this manuscript. This manuscript was supported by a Korea University Grant. Please send theoretical inquiries to the corresponding author, Jeewhan Yoon (Email: email@example.com) and send analytical inquiries to the cocorresponding author, YoungJun Kim (Email: firstname.lastname@example.org).
- Ardishvili, A., Cardozo, S., Harmon, S., & Vadakath, S. (1998). Towards a theory of new venture growth. Paper presented at the Babson Entrepreneurship Research Conference, Ghent, Belgium.Google Scholar
- Arrow, K. (1962). Economic welfare and the allocation of resources for invention. In National Bureau of Economic Research (Ed.), The rate and direction of inventive activity: Economic and social factors (pp. 609–626). Princeton, NJ: Princeton University Press. http://www.nber.org/chapters/c2144.
- Azevedo, J. P. (2011). grqreg: Stata module to graph the coefficients of a quantile regression. Boston, MA: Boston College Department of Economics. http://fmwww.bc.edu/repec/bocode/g/grqreg.ado.
- Bartelsman, E., Dobbelaere, S., & Peters, B. (2014). Allocation of human capital and innovation at the frontier: Firm-level evidence on Germany and the Netherlands. Amsterdam, the Netherlands: Tinbergen Institute. Retrieved from http://papers.tinbergen.nl/13095.pdf.
- Bianchini, S., Pellegrino, G., & Tamagni, F. (2014). Innovation strategies and firm growth: New longitudinal evidence from Spanish firms (Working paper). Retrieved from http://www.dipecodir.it/upload/file/Workshop%20Explaining%20Economic%20Change/Innovation%20Strategies%20and%20Firm%20Growth_%20New%20longitudinal%20evidence%20from%20spanish%20firms_pdf.pdf.
- Coad, A. (2009). The growth of firms: A survey of theories and empirical evidence. Cheltenham, UK: Edward Elgar. http://www.elgaronline.com/view/9781848443273.xml.
- Coad, A., & Rao, R. (2006). Innovation and market value: A quantile regression analysis. Economic Bulletin, 15(13), 1–10. Retrieved from http://www.accessecon.com/pubs/EB/2006/Volume15/EB-06O10012A.pdf.
- Davidsson, P., & Wiklund, J. (2006). Conceptual and empirical challenges in the study of firm growth. In P. Davidsson, F. Delmar, & J. Wiklund (Eds.), Entrepreneurship and the growth of firms (pp. 39–61). Cheltenham, UK: Edward Elgar. https://www.elgaronline.com/view/1845425758.00010.xml.
- Gibrat, R. (1931). Les inégalités économiques. Paris: Recueil Sirey.Google Scholar
- Hall, B. H., & Lerner, J. (2010). The financing of R&D and innovation. In B. Hall & N. Rosenberg (Eds.), Handbook of the economics of innovation (Vol. 1, pp. 609–639). Amsterdam, the Netherlands: Elsevier. http://dx.doi.org/10.1016/S0169-7218(10)01014-2.
- Helfat, C. E. (1997). Know-how and asset complementarity and dynamic capability accumulation: The case of R&D. Strategic Management Journal, 18(5), 339–360. doi: 10.1002/(SICI)1097-0266(199705)18:5<339:AID-SMJ883>3.0.CO;2-7.CrossRefGoogle Scholar
- Mansfield, E. (1962). Entry, Gibrat’s law, innovation, and the growth of firms. The American Economic Review, 52(5), 1023–1051. http://www.jstor.org.oca.korea.ac.kr/stable/1812180.
- Phillips, A. (1971). Technology and market structure: A study of the aircraft industry. Lexington, MA: Heath Lexington Books.Google Scholar
- Schimke, A., & Brenner, T. (2011). Temporal structure of firm growth and the impact of R&D (Working Paper No. 32). Karlsruhe, Germany: Karlsruher Institut für Technologie. Retrieved from http://econpapers.wiwi.kit.edu/downloads/KITe_WP_32.pdf.
- Yu, H.-C., Chen, C.-S., & Hsieh, D.-T. (2010). Keiretsu style main bank relationships, R&D investment, leverage, and firm value: Quantile regression approach. In C.-F. Lee, J. Lee, & A. C. Lee (Eds.), Handbook of quantitative finance and risk management (pp. 829–841). New York, NY: Springer. http://dx.doi.org/10.1007/978-0-387-77117-5_53.