Innovation and the Determinants of Firm Survival

27 Pages Posted: 5 Nov 2006

See all articles by Hielke Buddelmeyer

Hielke Buddelmeyer

Melbourne Institute; IZA Institute of Labor Economics

Paul H. Jensen

University of Melbourne - Melbourne Institute of Applied Economic and Social Research

Elizabeth Webster

Swinburne University of Technology; University of Melbourne - Melbourne Institute: Applied Economic & Social Research

Date Written: October 2006

Abstract

While many firms compete through the development of new technologies and products, it is well known that new-to-the-world innovation is inherently risky and therefore may increase the probability of firm death. However, many existing studies consistently find a negative association between innovative activity and firm death. We argue that this may occur because authors fail to distinguish between innovation investments and innovation capital. Using an unbalanced panel of over 290,000 Australian companies, we estimate a piecewise-constant exponential hazard rate model to examine the relationship between innovation and survival and find that current innovation investments increase the probability of death while innovation capital lowers it.

Keywords: firm survival, innovation

JEL Classification: O31, O32, C41

Suggested Citation

Buddelmeyer, Hielke and Jensen, Paul H. and Webster, Elizabeth M., Innovation and the Determinants of Firm Survival (October 2006). IZA Discussion Paper No. 2386, Available at SSRN: https://ssrn.com/abstract=942228

Hielke Buddelmeyer (Contact Author)

Melbourne Institute ( email )

161 Barry Street
Level 7
Parkville, Victoria 3010
Australia
+61383442091 (Phone)

HOME PAGE: http://www.melbourneinstitute.com

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Paul H. Jensen

University of Melbourne - Melbourne Institute of Applied Economic and Social Research ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

Elizabeth M. Webster

Swinburne University of Technology ( email )

Cnr Wakefield and William Streets, Hawthorn Victor
3122 Victoria, Victoria 3122
Australia

University of Melbourne - Melbourne Institute: Applied Economic & Social Research ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

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