Abstract
The causal relation between innovations developed by a focal firm and its performance has for some time been inconclusive. In this paper, we focus on the Australian manufacturing industries of the 1990s as a relatively efficient context and functional institutional environment, to hypothesize potentially confounding effects of the state of innovation in an industry sub-sector, as well as an innovating new venture embedded within that sub-sector. Our results show that in general, new ventures commercializing an innovation enjoy higher sales growth and returns on assets. In addition, while an average new venture enjoys significant positive growth in sales in an industry sub-sector where innovativeness is high—capturing a 'rising-tide-raises-all-boats' effect, however, for new ventures themselves developing innovations, high industry innovativeness also presents as a high barrier to overcome, limiting sales growth and returns on assets. In particular, the interaction effect can be so large in magnitude so as to overwhelm the main effect of innovation on performance.
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