The Risks of Innovation : Are Innovating Firms Less Likely to Die?
While innovation is a source of competitiveness, it may expose plants to survival risks. Using a rich set of plant-product data for Chilean manufacturing plants during the period 1996-2006 and discrete-time hazard models controlling for unobserved...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2012
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| Online Access: | http://documents.worldbank.org/curated/en/2012/06/16402302/risks-innovation-innovating-firms-less-likely-die http://hdl.handle.net/10986/9310 |
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okr-10986-93102021-04-23T14:02:45Z The Risks of Innovation : Are Innovating Firms Less Likely to Die? Fernandes, Ana M. Paunov, Caroline ACCOUNTING ADVERTISING ANALOGY CAPABILITIES CATEGORIZATION COMMERCIALIZATION COMPETITIVENESS COMPETITORS COMPLEXITY CONTINUOUS INNOVATION CULTURAL CHANGE DEVELOPMENT ECONOMICS DIFFERENT TYPES OF INNOVATION DISCUSSION DISCUSSIONS DRIVERS ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMICS ECONOMICS OF INNOVATION EFFICIENT MARKETS EMERGING MARKET EMPLOYMENT EMPLOYMENT GROWTH EQUIPMENT EXPORT MARKET FIRM GROWTH FIRM PERFORMANCE FOREIGN DIRECT INVESTMENT HIGH EMPLOYMENT HUMAN RESOURCES IDEA IDEAS INCREMENTAL INNOVATION INFERENCE INNOVATION INNOVATION INDICATORS INNOVATION LITERATURE INNOVATION PROCESS INNOVATION STRATEGIES INNOVATION STRATEGY INNOVATION SURVEYS INNOVATIONS INNOVATIVE NEW PRODUCTS INSIGHTS INTEGRATION INTERNATIONAL MARKETS INTERNATIONAL TRADE INVESTMENTS IN INNOVATION LABOR PRODUCTIVITY LIMITED ACCESS MANUFACTURING MANUFACTURING INDUSTRIES MARKET COMPETITION MARKET CONDITIONS MARKET ECONOMIES MARKET FAILURES MARKET RISK MARKET RISKS MARKET SHARE MARKET SHARES MARKETING MARKETPLACE MORAL HAZARD NEW PRODUCT NEW PRODUCTS NEW TECHNOLOGY OPEN ACCESS ORGANIZATIONAL INNOVATION PERFORMANCE INDICATOR PERFORMANCE MEASURES PERFORMANCE OUTCOMES PHYSICAL INFRASTRUCTURE PRICING STRATEGIES PRICING STRATEGY PRIVATE SECTOR PROCESS INNOVATION PRODUCT INNOVATION PRODUCT INNOVATIONS PRODUCT QUALITY PRODUCTIVITY PRODUCTIVITY GROWTH PRODUCTS MARKETS PUBLIC POLICY R&D RESULT RESULTS SALES SPREAD TECHNICAL KNOWLEDGE TRADE LIBERALIZATION TRADE REFORMS TURNOVER TURNOVER RATES UNEMPLOYMENT UNIQUE IDENTIFIER VARIETY VOLATILITY WEB WORKFORCE While innovation is a source of competitiveness, it may expose plants to survival risks. Using a rich set of plant-product data for Chilean manufacturing plants during the period 1996-2006 and discrete-time hazard models controlling for unobserved plant heterogeneity, this paper shows that innovating plants have higher survival odds. However, risk plays an important role for the innovation-survival link: only innovators that retain diversified sources of revenues survive longer. Single-product innovators are at greater risk of exiting. In addition, only innovators facing lower market risk, measured by fewer innovative competitors, low-pricing strategies, or lower sales volatility in the new products' markets, see their odds of survival increase significantly. Technical risk, measured by the proximity of product innovations to the plants' past expertise, the degree of sophistication of new products, or their novelty to the Chilean market, does not play a substantial role in the innovation-survival link. Engaging in risky innovation is not an irrational decision, since plants reap big payoffs -- higher productivity, employment and sales growth -- from such innovations. However, those payoffs are not always higher than those from cautious innovation, suggesting that constraining factors, such as credit constraints, force plants to take on more risk when innovating. An implication of the findings for industry dynamics is that among innovators, only the survival of cautious innovators is guaranteed. Since engaging in cautious innovation may not be feasible for all plants, there could be a role for policy in reducing innovators' exposure to risks and providing assistance to deal with failed innovations, while setting the right incentives. 2012-06-29T18:47:12Z 2012-06-29T18:47:12Z 2012-06 http://documents.worldbank.org/curated/en/2012/06/16402302/risks-innovation-innovating-firms-less-likely-die http://hdl.handle.net/10986/9310 English en_US Policy Research Working Paper; No. 6103 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
ACCOUNTING ADVERTISING ANALOGY CAPABILITIES CATEGORIZATION COMMERCIALIZATION COMPETITIVENESS COMPETITORS COMPLEXITY CONTINUOUS INNOVATION CULTURAL CHANGE DEVELOPMENT ECONOMICS DIFFERENT TYPES OF INNOVATION DISCUSSION DISCUSSIONS DRIVERS ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMICS ECONOMICS OF INNOVATION EFFICIENT MARKETS EMERGING MARKET EMPLOYMENT EMPLOYMENT GROWTH EQUIPMENT EXPORT MARKET FIRM GROWTH FIRM PERFORMANCE FOREIGN DIRECT INVESTMENT HIGH EMPLOYMENT HUMAN RESOURCES IDEA IDEAS INCREMENTAL INNOVATION INFERENCE INNOVATION INNOVATION INDICATORS INNOVATION LITERATURE INNOVATION PROCESS INNOVATION STRATEGIES INNOVATION STRATEGY INNOVATION SURVEYS INNOVATIONS INNOVATIVE NEW PRODUCTS INSIGHTS INTEGRATION INTERNATIONAL MARKETS INTERNATIONAL TRADE INVESTMENTS IN INNOVATION LABOR PRODUCTIVITY LIMITED ACCESS MANUFACTURING MANUFACTURING INDUSTRIES MARKET COMPETITION MARKET CONDITIONS MARKET ECONOMIES MARKET FAILURES MARKET RISK MARKET RISKS MARKET SHARE MARKET SHARES MARKETING MARKETPLACE MORAL HAZARD NEW PRODUCT NEW PRODUCTS NEW TECHNOLOGY OPEN ACCESS ORGANIZATIONAL INNOVATION PERFORMANCE INDICATOR PERFORMANCE MEASURES PERFORMANCE OUTCOMES PHYSICAL INFRASTRUCTURE PRICING STRATEGIES PRICING STRATEGY PRIVATE SECTOR PROCESS INNOVATION PRODUCT INNOVATION PRODUCT INNOVATIONS PRODUCT QUALITY PRODUCTIVITY PRODUCTIVITY GROWTH PRODUCTS MARKETS PUBLIC POLICY R&D RESULT RESULTS SALES SPREAD TECHNICAL KNOWLEDGE TRADE LIBERALIZATION TRADE REFORMS TURNOVER TURNOVER RATES UNEMPLOYMENT UNIQUE IDENTIFIER VARIETY VOLATILITY WEB WORKFORCE |
| spellingShingle |
ACCOUNTING ADVERTISING ANALOGY CAPABILITIES CATEGORIZATION COMMERCIALIZATION COMPETITIVENESS COMPETITORS COMPLEXITY CONTINUOUS INNOVATION CULTURAL CHANGE DEVELOPMENT ECONOMICS DIFFERENT TYPES OF INNOVATION DISCUSSION DISCUSSIONS DRIVERS ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMICS ECONOMICS OF INNOVATION EFFICIENT MARKETS EMERGING MARKET EMPLOYMENT EMPLOYMENT GROWTH EQUIPMENT EXPORT MARKET FIRM GROWTH FIRM PERFORMANCE FOREIGN DIRECT INVESTMENT HIGH EMPLOYMENT HUMAN RESOURCES IDEA IDEAS INCREMENTAL INNOVATION INFERENCE INNOVATION INNOVATION INDICATORS INNOVATION LITERATURE INNOVATION PROCESS INNOVATION STRATEGIES INNOVATION STRATEGY INNOVATION SURVEYS INNOVATIONS INNOVATIVE NEW PRODUCTS INSIGHTS INTEGRATION INTERNATIONAL MARKETS INTERNATIONAL TRADE INVESTMENTS IN INNOVATION LABOR PRODUCTIVITY LIMITED ACCESS MANUFACTURING MANUFACTURING INDUSTRIES MARKET COMPETITION MARKET CONDITIONS MARKET ECONOMIES MARKET FAILURES MARKET RISK MARKET RISKS MARKET SHARE MARKET SHARES MARKETING MARKETPLACE MORAL HAZARD NEW PRODUCT NEW PRODUCTS NEW TECHNOLOGY OPEN ACCESS ORGANIZATIONAL INNOVATION PERFORMANCE INDICATOR PERFORMANCE MEASURES PERFORMANCE OUTCOMES PHYSICAL INFRASTRUCTURE PRICING STRATEGIES PRICING STRATEGY PRIVATE SECTOR PROCESS INNOVATION PRODUCT INNOVATION PRODUCT INNOVATIONS PRODUCT QUALITY PRODUCTIVITY PRODUCTIVITY GROWTH PRODUCTS MARKETS PUBLIC POLICY R&D RESULT RESULTS SALES SPREAD TECHNICAL KNOWLEDGE TRADE LIBERALIZATION TRADE REFORMS TURNOVER TURNOVER RATES UNEMPLOYMENT UNIQUE IDENTIFIER VARIETY VOLATILITY WEB WORKFORCE Fernandes, Ana M. Paunov, Caroline The Risks of Innovation : Are Innovating Firms Less Likely to Die? |
| relation |
Policy Research Working Paper; No. 6103 |
| description |
While innovation is a source of
competitiveness, it may expose plants to survival risks.
Using a rich set of plant-product data for Chilean
manufacturing plants during the period 1996-2006 and
discrete-time hazard models controlling for unobserved plant
heterogeneity, this paper shows that innovating plants have
higher survival odds. However, risk plays an important role
for the innovation-survival link: only innovators that
retain diversified sources of revenues survive longer.
Single-product innovators are at greater risk of exiting. In
addition, only innovators facing lower market risk, measured
by fewer innovative competitors, low-pricing strategies, or
lower sales volatility in the new products' markets,
see their odds of survival increase significantly. Technical
risk, measured by the proximity of product innovations to
the plants' past expertise, the degree of
sophistication of new products, or their novelty to the
Chilean market, does not play a substantial role in the
innovation-survival link. Engaging in risky innovation is
not an irrational decision, since plants reap big payoffs --
higher productivity, employment and sales growth -- from
such innovations. However, those payoffs are not always
higher than those from cautious innovation, suggesting that
constraining factors, such as credit constraints, force
plants to take on more risk when innovating. An implication
of the findings for industry dynamics is that among
innovators, only the survival of cautious innovators is
guaranteed. Since engaging in cautious innovation may not be
feasible for all plants, there could be a role for policy in
reducing innovators' exposure to risks and providing
assistance to deal with failed innovations, while setting
the right incentives. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Fernandes, Ana M. Paunov, Caroline |
| author_facet |
Fernandes, Ana M. Paunov, Caroline |
| author_sort |
Fernandes, Ana M. |
| title |
The Risks of Innovation : Are Innovating Firms Less Likely to Die? |
| title_short |
The Risks of Innovation : Are Innovating Firms Less Likely to Die? |
| title_full |
The Risks of Innovation : Are Innovating Firms Less Likely to Die? |
| title_fullStr |
The Risks of Innovation : Are Innovating Firms Less Likely to Die? |
| title_full_unstemmed |
The Risks of Innovation : Are Innovating Firms Less Likely to Die? |
| title_sort |
risks of innovation : are innovating firms less likely to die? |
| publisher |
World Bank, Washington, DC |
| publishDate |
2012 |
| url |
http://documents.worldbank.org/curated/en/2012/06/16402302/risks-innovation-innovating-firms-less-likely-die http://hdl.handle.net/10986/9310 |
| _version_ |
1764409280994213888 |