Abstract

The ability of young, new firms to innovate and challenge incumbents with their creative offerings is widely recognized as one of the most important functions of new ventures. Yet existing literature offers contradicting conclusions regarding the performance outcomes of innovative activities in new firms. In this research, we break down both constructs—innovation and performance—to investigate how specific types of innovations affect different types of performance, thus providing important specifications to previously tested models. With regard to the nature of innovations, we consider their patent protection. With regard to the nature of firm performance, we distinguish growth from profitability. In general, we ask: How does innovativeness in new firms affect growth and profitability? And do these effects differ, depending on whether innovativeness is based on protected intellectual property? The knowledge-based view of the firm provides the theoretical framing for this study.

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