LIFE CYCLE, COMPETITIVE STRATEGY, CONTINUOUS INNOVATION AND FIRM PERFORMANCE

Abstract

Based on the life cycle, competitive strategy and continuous innovation theory, we empirically examine how life cycle and competitive strategy affect firms’ continuous innovation in China. The results show that declining firms tend to engage in less continuous innovation compared with growing or mature firms, which are more inclined to engage in continuous innovations. Results have also indicated that firms with offensive strategy engage in more continuous innovation compared with those following defensive strategy. Surprisingly, continuous innovation has a significant negative effect on business performance in different dimensions, such as return on assets, operating profit margin and enterprise value. Considering that the effect of continuous innovation on enterprise business performance may not be evident during the same financial period, we further examined the effects of continuous innovation on firms’ assets return ratio, operating profit ratio and enterprise value over 1–5 years ahead. However, we do not find continuous innovation having any positive effects on business performance.