Corporate innovativeness and risk management of small firms – evidences from start-ups

Abstract

The trade-off between innovation benefit and risk control is worthy of investigation and is predictable for high-tech intensive start-ups. The innovation strategy selected by firms and the dynamic processes in innovative activities are rarely explored. This study questions the relationship between a firm's strategies on innovativeness and risk preference, especially for small firms in their initial stages of business. We find that small firms’ risk-averse levels respond differently to innovation investment and skilled labor hiring by adopting a comprehensive start-up dataset from a science park in Beijing, China. This study shows that small firms are more financially constrained in financial decision making and highlights the importance of balancing business expansion and optimization of corporate structures.