Innovation in Large and Small Firms: An Empirical Analysis

Abstract

Probes the impact that various industry characteristics have on the innovative output of firms. Data used for this analysis were gathered by the U.S. Small Business Administration (SBA) through examination of over 100 technology, engineering, and trade journals. The SBA data on new products, processes and services introduced to the market in 1982 was broken down by firm size, industry, and significance. Innovation activity is measured by the number of innovations in each four-digit SIC industry. Prior studies have utilized such data as patents and stock market value for large firms; through this more direct measure of innovation activity, several key findings are made. In an industry composed primarily of large firms, the level of innovation will be higher, though that activity will occur mostly in the smaller firms of that industry -- i.e., innovation appears to be an important competitive strategy for small firms in that environment. Results indicate that lower levels of concentration are associated with increased innovation activity. Further, as industry R&D increases, the number of innovations increases, but this increase is at a decreasing rate. Unionization is found to be negatively related to innovation activity. Although the results do not shed much light on the exact relationship between R&D, appropriability, and innovation activity, they do show support for the proposition that differences in economic and technological environments lead to differences in the innovation activity of large and small firms. (SRD)

Keywords: Market structure, Industry concentration, Industrial research, Innovation process, R&D, Clusters, Labor unions, Environment, Skilled labor, Large firms