Risk-reward trade-offs: Modes of innovation and economic performance of young firms

Arbeitspapier

The literature has established that young firms engaged in R&D exhibit a pronounced asymmetry in their economic performance, with high premia at the upper end of the conditional growth distribution. We argue that this binary view - i.e., R&D-oriented firms versus all others - is somewhat limited. In particular, non-R&D innovation activity should be treated as an important category in its own right, and that its sui generis mode of learning is reflected in a distinct growth pattern. We examine data from the German IAB/ZEW Start-up Panel. Our evidence suggests that young non-R&D innovators also exhibit asymmetric and improved economic performance relative to non-innovators, although less so than R&D firms. Our results also suggest that firms engaged in non-R&D innovation grow in a less risky and costly way than R&D innovators, and that a young firm's decision whether to engage in R&D for the purpose of innovation and growth can therefore usefully be understood as being driven by a specific risk-return trade-off.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ifh Working Paper ; No. 43/2024

Classification and Topics

• Classification: Wirtschaft ; Firm Behavior: Theory ; Production, Pricing, and Market Structure; Size Distribution of Firms ; Firm Performance: Size, Diversification, and Scope ; Entrepreneurship ; Innovation and Invention: Processes and Incentives
• Subject: Firm growth ; R&D ; non-R&D innovation ; Modes of innovation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Runst, Petrik ; Thomä, Jörg
• Event: Veröffentlichung
• (who): Volkswirtschaftliches Institut für Mittelstand und Handwerk an der Universität Göttingen (ifh)
• (where): Göttingen
• (when): 2024

Further information

• Handle: http://hdl.handle.net/10419/285360
• Last update: 10.03.2025, 11:43 AM CET