Regional innovation and firm performance

Abstract

This paper uses novel measures of innovation and engagement, at the county level in the US, to frame the relationship between innovation levels in a region and the performance of publicly traded firms in those areas. In theory, an innovative community should foster improved firm performance, reinvestment, and continued growth for both the firm and the community, feeding back into firm performance, a virtuous cycle. Our results suggest that inventive activity within a county, measured using a patent index, is positively related to revenue and profit growth, while technical creativity, measured using an index of employment in technical fields, is associated with process improvement and net income growth. Finally, the opportunity to collaborate and interact socially within a community is positively associated with firm performance measures, but with only weak statistical significance for the publicly traded firms in the sample.