Innovations and Growth: Evidence from Finnish SMEs

Abstract

The purpose of this study is to clarify the factors that affect the ability of small and medium-sized enterprises (SMEs) to create innovations that promote firm growth. Studies regarding the relationship between research intensity and growth have typically produced mixed results, revealing a modest or non-existent influence of innovations on sales growth. These studies have typically used patents as indicators of innovation. We directly asked firms whether their innovations had affected their growth, and we regressed the results over several variables, covering a wide range of dimensions related to (1) personal factors, (2) firm-related factors (including questions that reflect a firm’s innovation strategies), and (3) regional factors. Our analyses of Finnish SMEs revealed that trust, innovation activities and networking are essential components of firms’ ability to create innovations that contribute to high firm growth. A multinomial logistic regression analysis also provided support for the assumption that age, technological level and firm location affect firm performance.