Small Firm Innovation, Growth and Performance

Abstract

This article uses Ordinary Least Squares (OLS) estimation techniques of a large-scale survey to examine the effect of firms’ innovation activities on their growth performance. The survey, covering 1347 respondents, is the largest and most definitive assessment of enterprise in Scotland and Northern England. In this article we employ four measures of growth: growth in employment; growth in turnover; growth in productivity; change in the profit margin. These measures of growth are analysed separately for manufacturing and service firms. The models are re-estimated with the current sales and profit levels adjusted for the number of employees. The most emphatic findings highlight a positive relationship between novel product innovation and employment growth and, for manufacturing firms, at least in the short term, a negative relationship between product innovation (both incremental and novel) and growth in sales or productivity. By contrast, growing sales and productivity appear positively associated with incremental process introductions in service firms.