Going, Going, Gone. Innovation and Exit in Manufacturing Firms

25 Pages Posted: 14 May 2007

See all articles by Elena Cefis

Elena Cefis

University of Bergamo - Department of Economics; Utrecht University - Tjalling C. Koopmans Research Institute

O. Marsili

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM)

Date Written: March 21, 2007

Abstract

This paper examines the effect of innovation on the risk of exit of a firm, distinguishing between different modes of exits. Innovation represents a resource and a capability that helps a firm to build competitive advantage and remain in the market. At the same time, the resources and capabilities of innovative firms make them an attractive target for the acquisition process of other firms, thereby increasing the likelihood of the exiting the market. We explore these effects empirically by linking data on innovation and exits for a large sample of manufacturing firms in the Netherlands. The results show that the effect of innovation on a firm's risk of exit differs according to the mode of exit and, in addition, it is shaped by the nature of the innovation. While a firm can lower its risk of failure by innovating in either products or processes, the introduction of a new product in the absence of innovation in the production process increases the risk of exit as a result of merger and acquisition.

Keywords: Mergers and acquisitions, Innovation, Competing risks model, Firm exit

Suggested Citation

Cefis, Elena and Marsili, Orietta, Going, Going, Gone. Innovation and Exit in Manufacturing Firms (March 21, 2007). ERIM Report Series Reference No. ERS-2007-015-ORG, Available at SSRN: https://ssrn.com/abstract=981293

Elena Cefis

University of Bergamo - Department of Economics ( email )

via dei Caniana 2
Bergamo, 24127
Italy

HOME PAGE: http://www.elena-cefis.it

Utrecht University - Tjalling C. Koopmans Research Institute ( email )

Adam Smith Building
Kriekenpitplein 21-22
Utrecht, 3584 EC
Netherlands

Orietta Marsili (Contact Author)

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands
+31 10 408 9508 (Phone)
+31 10 408 9015 (Fax)

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