Abstract
Increasingly, innovation is seen as a novel leverage tool with which to create business and social value and thereby place its finders and users at a competitive advantage. Contemporary research suggests that the determinants of the innovation activity of firms are numerous. In this paper, we consider the financial and governance characteristics that might influence the innovation activity of a sample of 700 family firms in Italy. Our study was conducted over a 10-year period, from 2007 to 2016, using panel analysis models alongside robustness tests for the lagging effect and the probability regression as well as diagnostic statistics to ensure the use of an appropriate model. The results show that the existence of institutional investors, as a proxy for governance, has a persistent positive relationship with patent value, as a proxy for innovation, but not with the likelihood of being innovative. Moreover, financial indicators such as net working capital, earnings before interest, taxes, depreciation, and amortization, debt, and equity are found to explain innovation activity better than other indicators in both the panel and probability regressions. We also find very little significant difference between the sectors and regions featured in the study, suggesting that the relationship among them is quasi-systematic. Concluding the paper, our findings are discussed in relation to their policy implications and suggestions for further research are made.
Highlights
Firms have long played a significant role in many developed economies, while innovation is increasingly being seen as a novel driver toward creating business and social value that places its finders and users at a comparative competitive advantage (Klein, 2000)
We investigated the financial and governance characteristics of a sample of family firms in Italy over the period 2007 to 2016 using panel regressions and providing robustness test results for the potential lag effect and for the probability analysis
The existence of institutional investors was used as a governance proxy and net working capital, EBITDA, debt, and equity were used to indicate the financial characteristics of firms, with both sets of variables used as independent variables
Summary
Firms have long played a significant role in many developed economies, while innovation is increasingly being seen as a novel driver toward creating business and social value that places its finders and users at a comparative competitive advantage (Klein, 2000). The study’s results show that the existence of institutional investors, as a proxy for governance, has a persistent positive relationship with patent value, as a proxy for innovation, but not with the likelihood of being innovative. Financial indicators such as net working capital, earnings before interest, taxes, depreciation, and amortization (EBITDA), debt, and equity are shown to explain innovation activity better than other indicators in both the study’s panel and probability regressions. Vol 13, No 12; 2018 difference among sectors and regions, which suggests that this relationship is quasi-systematic
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