Scandinavian Working Papers in Economics

Ratio Working Papers,
The Ratio Institute

No 206: The Relationship Between Innovation and New Firm Growth

Alexander McKelvie (), Anna Brattström () and Karl Wennberg ()
Additional contact information
Alexander McKelvie: Syracuse University, Postal: Department of Entrepreneurship & Emerging Enterprises, Whitman School of Management, Syracuse University, 721 University Ave., Syracuse NY 13244
Anna Brattström: Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-11383 Stockholm, Sweden
Karl Wennberg: Ratio, Postal: The Ratio Institute, P.O. Box 5095, SE-102 42 Stockholm, Sweden

Abstract: This paper seeks to untangle the relationship between new firm’s innovative activities and subsequent growth. We theorize about the inter-related roles of managerial growth willingness, inputs and outputs of innovative activities, and their subsequent link to sales growth. Investigating a longitudinal sample of 282 new Swedish firms reveals a complex set of mediating relationships that, when combined, help explain how innovation affects growth. First, we find growth willingness has an important relationship with innovative inputs such as R&D and market knowledge competence. Second, these inputs affect important innovative outputs such as new product development and the percentage of sales from new products. Third, these outputs directly affect growth – whereas the innovative inputs such as R&D do not have a direct impact. Taken together, our paper highlights the joint importance of managerial attitudes and strategic choices that help to shed new light on the effect of innovation on new firm growth. Implications for research and public policy are discussed.

Keywords: New Firm Growth; Innovation; RD; Growth Willingness

JEL-codes: L22; L26; M13

37 pages, March 5, 2013

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