Abstract
This paper examines whether Chinese manufacturing firms survive longer if they innovate. More particularly, it focuses on whether R&D has a greater effect on firm survival than new product innovations. It compares dichotomous and continuous measures of R&D and innovation output, various duration models, heterogeneity in the effects of innovation depending on the industrial environment, and it examines whether risk modifies the effect of innovation on the hazard rate. The analysis is based on data from the National Bureau of Statistics of China, including over 100,000 firms in each year over the period 1999–2006 from all provinces and manufacturing industries in China. It is found that both R&D and product innovation, be it in terms of incidence or intensities, increase the chance of firm survival. As opposed to previous studies, the results indicate that R&D has a greater marginal effect on survival than innovation output and that various measures of risk actually increase the effect of R&D/innovation on survival.
Highlights
In order to increase, or merely to save, their market shares firms compete with each other through prices, and through the introduction of new products or quality improvements in existing products or services (Baumol, 2002; Schumpeter, 1947)
It focuses on whether R&D has a greater effect on firm survival than new product innovations
We examine whether innovation input and output are complements, whether they depend on competition and R&D intensity at the industry level, and whether there is an optimal level of R&D or product innovation beyond which survival is at risk
Summary
Merely to save, their market shares firms compete with each other through prices, and through the introduction of new products or quality improvements in existing products or services (Baumol, 2002; Schumpeter, 1947). Rosenbusch et al (2011) conducted from a meta-analysis that investing in innovation (e.g., R&D spending) was less connected to firm survival than the output of innovation itself (i.e. patents or innovative products or services). We focus on whether it is the actual introduction of new products on the market or rather the conduct of R&D activities that matter more for firm survival. Our analysis is based on a large unbalanced panel of Chinese manufacturing firms stretching from 1999 to 2006 from all provinces of China. Since these are Census data for all firms above a certain size, we are able to identify when a firm enters and exits the sample.
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