Innovation and imitation: substitutes or complements?

Most of the research on imitation and innovation has focused on developed countries and examined whether imitation promotes or hinders innovation at the macro, industry and intra firm level, and the effect that this has on economic growth. Less research has been conducted about the dynamics that exist between innovation and imitation at the plant-level in developing countries, and the effect that trade policy has on this relationship. This article uses plant-level data from Mexico to analyse the dynamic relationship that exists between innovation and imitation at the microeconomic level. The empirical results suggest that in the context of a developing country, innovation and imitation complement each other and trade policy has no effect on this relationship.     

Going offshore or better staying in? Spatial relocation strategies and their impact on firm innovativeness

We analyse the short- to mid-run effects of spatial relocation strategies on firm innovativeness and productivity growth. Using conditional difference-in-difference estimation with multiple treatments, we find for a sample of German firms in 1999–2013 that offshoring has a statistically significant negative impact on the firms’ innovation activity and productivity growth vis-à-vis nonrelocating comparison firms. In contrast, we find a positive link between domestic relocation activities and the firms’ propensity to introduce a product innovation. Firms should thus carefully account for potentially distorting performance effects when deciding about the spatial scale of relocation strategies in the short to mid-run.     

Environmentally oriented innovative strategies and firm performance in services. Micro‐evidence from Italy

This paper aims at analysing the impact of environmentally oriented innovative strategies on firms’ economic performance in terms of employment, turnover and labour productivity growth. We exploit a unique dataset of 773 Italian service firms with 20 or more employees, based on 1993–1995 Community Innovation Survey (CIS) II data on innovation strategies and 1995–1998 System of the Enterprise Account (SEA). Using a Gibrat‐like empirical model, our findings show a negative link between environmental motivations and growth in employment and turnover in the short term, which then associates to a not significant or even negative effect on labour productivity growth, a result which is explainable by various factors: non‐mature markets; early movers that need more time to grasp the benefits of innovative actions; weaknesses of some service branches. The effect on employment is in part compatible with the existing evidence and may be based on efficiency improvements (dematerialisation processes), which also impact on efficiency by reducing workforce numbers. The effect on turnover of environmental innovation strategy is negative, implying either a short‐medium effect, possibly balanced in the long run by net benefits in terms of higher added value, or a real negative impact, which may be contingent on the period of observation, when environmental strategies where not at the heart of strategic management policies. Neither Porter‐like effects nor virtuous circles among environmentally strategies and performance seem to be present, at least in the short run and for services firms, calling for the necessity of further analyses on medium‐ long‐term effects and performances of specific service branches. Though effects on performances could turn out positive in the long run when mature green markets and investments provide their benefits, our evidence highlights that services could still find hard times in tackling the well‐known low productivity ‘disease’ even in the environmental realm.     

Interdependence and spillovers: is firm performance affected by others’ innovation activities?

The creation of new knowledge is a case in which agents' behaviour can affect the performance of other actors positively, given that new knowledge creates positive externalities in the market. In this context, we investigate the existence of performance spillovers associated with innovation activities by quantifying the innovation produced in surrounding firms and controlling for the fact that a firm is itself an innovation producer. We use data from the Third Community Innovation Survey (CIS III) that measures innovation in a broad way, not reducing it to R&D and patents, which departs from previous literature on spillovers. Furthermore, to tackle the endogeneity of the innovation variables on the firm production decision, we resort to the firm intellectual property protection methods as an instrument. We found a positive spillover of innovation on firm value added. The results also show that process innovation spillovers are more prevalent than product innovation spillovers.     

British SMEs’ e-commerce technological investments and firm performance: an RBV perspective

Despite the heated debate on the Information Technology (IT) investment–performance paradox, the resource-based view (RBV) has received relatively little attention as an approach to explain such phenomena, particularly in the small and medium enterprise (SME) and e-commerce context. This study draws on the RBV perspective to empirically examine the association between SME e-commerce investments and firm performance. We collected firm-level data from 430 British SMEs across 16 industry sectors. Results demonstrate that RBV provides strong theoretical support, that is, business resources, human resources, and external resources (i.e. e-commerce readiness) strongly contribute to enhanced firm performance. The sophistication of SMEs' e-commerce websites contribute to firm performance, but those firms' capital investments in IT and e-commerce training per se are not significant performance drivers. Our findings suggest that UK SMEs can and do differentiate themselves on the basis of their e-commerce capability, which is created by the synergistic combination of e-commerce resources with other organisational resources and capabilities.     

Pay inequality and firm performance: evidence from matched employer–employee data

A large matched employer–employee data set for Sweden is used to test several predictions from tournament theory. For white-collar workers a positive and significant effect of intra-firm wage dispersion on profits and average pay is found, using various measures of wage dispersion. This result is robust for controlling for firm differences in human capital and firm fixed-effects as well as for instrumenting the wage dispersion variable to take into account endogeneity of wage dispersion. Using data on around 10?000 managers, a positive and significant association between pay dispersion and profits is also found for executives. Further results include a positive relationship between market demand volatility and wage dispersion, measured as coefficient of variation in managerial pay, and a negative effect of the number of managers (contestants) on managerial pay spread. The first two results are in accordance with predictions from tournament theory, while the last one is not.     

Exports and firm survival: do trade regime and productivity matter?

This article aims to investigate the role of trade regime and productivity in the link between exporting and firm survival. We use firm-level data from China to examine whether exporters engaged in different trade regimes and with different levels of productivity react differently with regard to survival probability. We find that exporters engaged in all types of trade regimes have higher survival probabilities in comparison with nonexporters; however, the survival probability of exporters engaged in processing trade is less positively affected by productivity.     

Network position and firm performance – the mediating role of innovation

Analysing a unique, domain-similar database including all horticulturalists in a major flower-producing country, this paper shows that a firm’s central position in a network significantly improves its financial performance. The effect of strategic positioning in a network is in large part mediated through its enhanced innovativeness. Strategically positioning in a network of firms contributes more to firm performance, both directly as well as indirectly, than other strategic options a firm has available, such as seeking scale, seeking to diversify, pursuing cost advantages, or locating in a cluster.     

China’s value-added tax reform,firm behavior and performance

China reformed value-added tax (VAT) by removing investment from the tax base in northeastern provinces in 2004, which is a “natural experiment” of its tax system. Using difference-in-differences method, this paper for the first time investigates the impact of VAT reform on China firms’ fixed asset investment, employment behavior, innovative activities, and productivity, and furthermore discusses the impact of firm behavior on industrial structural upgrade and employment with a firm-level panel data of large and medium-sized manufacturing enterprises in China. We find that VAT reform significantly promotes firms’ fixed asset investment, and increases firms’ capital-labor ratio and productivity; while enhancement of firms’ productivity is mainly achieved by means of substituting labor with capital, rather than independent technology innovation; meanwhile, VAT reform distinctly decreases employment. Our findings have essential policy implications on the extension of VAT reform in the entire China.     

Workforce gender effects on firm performance and workers’ pay: evidence for the UK

Using linked workplace–worker data for the UK, a number of hypotheses are tested related to individual gender and the gender composition of the workforce. The proportion of female workers per establishment is strongly negatively associated with median workplace pay. There is some evidence that workplace performance (but not employment size or growth) is positively associated with the female–male workforce ratio. For workers, the female wage penalty (which is substantial) is strongly influenced by the female–male workforce ratio. In addition, commensurate with gender discrimination, those who manage female workers receive lower wages but professional workers in the same establishments do not.     

Anti-corruption campaign in China: good news or bad news for firm value?

This article investigates the effects of an anti-corruption campaign on firm value by testing market reactions to the investigation of top local officials during the recent anti-corruption campaign in China. We find that the anti-corruption events are more likely to be bad news for the market values of local state-owned enterprises (SOEs) but good news for the market values of non-SOEs less dependent on political connections. Besides, anti-corruption events are also more likely to be bad news for firms in regulated industries or low-marketization regions but good news for firms in nonregulated industries or high-marketization regions.     

Simultaneous board and CEO diversity: does it increase firm value?

There remain open questions regarding whether board of director ethnic and gender diversity increases or decreases firm value. Additionally, prior research has yet to examine the value effects of a diverse board in the presence of a gender/ethnic minority CEO. Using the KLD social ratings database, we examine 13?000 firm-years and provide robust evidence that board diversity increases firm value. However, we also show that any value added via board diversity is nullified when a diverse board operates in the presence of a female and/or minority CEO. Results suggest that a significant portion of the value in board diversity may come from gender/ethnic differences between the board members and the CEO. One implication of our study is that when hiring a CEO or electing directors relative gender/ethnic make-up is important.     

Innovation,structural change and demand evolution: does demand saturate?

In this paper the exploration of the interaction mechanisms between the evolution of demand and the overall process of differentiation of the economic system is pursued in a twofold way: (i) the question is asked whether demand indeed saturates and whether such saturation is required for an ongoing economic development; (ii) the impact of the income distribution on the evolution of demand and thus on economic development is investigated. To study the existence and impact of demand saturation, Engel curves are calculated under different conditions. To study the impact of income distribution, TEVECON distinguishes within the population of the economic system two social classes, which differ in their level and quality of education, and thus for their human capital and wages.     

On the joint effect of technological and management innovations on performance: increasing or diminishing returns?

Most studies on innovation are aimed at covering technological innovation, neglecting other modes of innovation based on non-technological drivers. The latter, referred to as management innovation, consists of the implementation of new management practices, processes or organisational tasks. This work advances knowledge on the topic by exploring the joint effect of simultaneously introducing technological and management innovations on performance. Based on an analysis of 12,563 Spanish firms drawn from CIS data, our findings suggest that firms frequently pursue the simultaneous or joint introduction of both technological and management innovations and that integration impacts positively on a firm’s performance, evidencing an inverted U-shape that suggest positive but diminishing returns. A theoretical framework using the capability-based view embraces the emerging conversation on management innovation issues and its relationship with the well-researched technological one.     

Does Culture Drive Innovation and Export Quality?

Quality upgrading is important for two reasons: it helps us understand the determinants of trade flows between countries and it promotes economic development. We study the cultural determinants of export quality using Hofstede's four original cultural dimensions to provide hypotheses on R&D spending, patents per capita and export quality. We then employ three-stage least squares analysis and confirm our hypotheses. For example, we find uncertainty avoidance encourages small-scale continuous improvement initiatives and substantially increases export quality. Power distance and individualism increase export quality, while masculinity has a small impact on quality. Finally, we provide implications for understanding the direction of trade and developing policy.     

Tobacco and alcohol: complements or substitutes?

The question of whether alcohol and tobacco are consumed as complements or substitutes is crucial for determining the side-effects of anti-smoking policies. Numerous papers have empirically addressed this issue by estimating demand systems for alcohol and tobacco, and subsequently calculating cross-price effects. However, this traditional approach is often seriously hampered by insufficient price variation observed in survey data. We, therefore, suggest an alternative instrumental variables approach that statistically mimics an experimental study and does not rely on prices as explanatory variables. This approach is applied by means of German survey data. Our estimation results suggest that a reduction in tobacco consumption results in a moderate reduction in alcohol consumption. It is demonstrated that this implies that alcohol and tobacco are complements. Hence, we conclude that successful anti-smoking policies will not result in the unintended side-effect of an increased (ab)use of alcohol.     

Brunner and Leijonhufvud: friends or foes?

Karl Brunner and Axel Leijonhufvud constantly pointed out the prominence of imperfect information in macroeconomic analysis. This paper argues that, despite strong oppositions related to their rival schools of thought, this emphasis on informational problems led them to adopt similar views on many theoretical and methodological issues. These issues encompass the perception of the economic agent in society, the theory of price inflexibility and unemployment, the role of relative prices, the importance of signal-extraction problems and the position within the Marshall-Walras divide.     

Does corporate governance still affect firm performance after controlling the distress factor?

We explore the impact of corporate governance on firm performance. We first identify whether corporate governance can still be an influential factor or has been largely captured by the traditional Fama-French three-factor model. More importantly, our study adds a financial distress factor to the Fama-French three-factor model to form a four-factor pricing model (labelled as the ‘financial distress four-factor model’). We find that for the US Russell 1000 firms, the financial distress four-factor model is the better model of the two models considered. We further find that the financial distress four-factor model has a higher explanatory power in capturing the return variation. We find that the differences between the return of firms with good (weak) corporate governance and the expected return are insignificantly different from zero for most portfolios in all the two models. The financial distress four-factor model, however, has the fewer portfolios with return difference being significantly different from zero, implying that corporate governance has been better priced in the financial distress factor.     

Industry innovativeness,firm size,and entrepreneurship: Schumpeter Mark III?

Emphasizing the dynamics in economies and industries, Schumpeter points to entrepreneurs carrying out ‘new combinations’. His work, and in particular the Theory of Economic Development, is often interpreted as praising individual entrepreneurs setting up new firms to contribute to an industry’s innovativeness. This has come to be referred to as the Schumpeter Mark I perspective. Later, however, in his Capitalism, Socialism, and Democracy, Schumpeter has rather suggested that large incumbents are best positioned to contribute to an industry’s innovativeness (Schumpeter Mark II). In this discussion, however, the possibly different effects of structural as opposed to dynamic industry competitiveness is often not taken into account. In addition, the contribution of new and small firms to industry innovativeness are often conflated. Using New Product Announcements as a measure of innovation, we find that industries dominated by small firms prove consistently and significantly more innovative than industries where large firms dominate. Taking account of industries’ structural and dynamic levels of competition, we find that high existing and increasing levels of new firms entering an industry, exercising what Schumpeter called the ‘entrepreneurial function’, actually decrease industry innovativeness. We conclude that the contribution of small firms in terms of industry innovativeness is different from that of large as well as new firms, suggesting a Schumpeter Mark III perspective.