Abstract
This study is the first to study the lasting effects of innovation on firm profitability in Vietnam. Using a unique panel dataset for the period 2005–2015, our results show that innovators achieve higher profit in comparison with non-innovating firms. The positive effects of innovation on firm profitability are observed not only in the short term but also in the longer term. The benefits of innovation for firm profitability can be seen in higher export probability, better productivity, better access to formal credit, and the ability to secure government support, but only after innovation.
Highlights
The relationship between innovation and firm performance has been discussed widely in previous studies (e.g., Aas & Pedersen, 2011)
The role of innovation on firm performance cannot be explained from a single perspective
When companies undertake innovation, they face the problem of significant increases in the cost of goods and this can harm their profitability and the expected returns of shareholders
Summary
The relationship between innovation and firm performance has been discussed widely in previous studies (e.g., Aas & Pedersen, 2011). Innovation is often an important activity that helps enterprises implement effective change in the market, in technology and competitive advantage, as well as impelling them to take necessary action affecting their financial performance and environment (Bisbe & Otley, 2004). A lack of empirical evidence outlining the prospects of firms after becoming innovators adversely affects the government’s ability to adopt appropriate policies Another motivation for us to pursue this topic arises for several reasons. When considering the effect of innovation on firm performance, most previous research applies regression models, such as the pooled OLS model or fixed effect approach These approaches can be challenged because of potential self-selection.
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