The Relationship Between Innovation and Corporate Performance in Japanese SMEs by Two-Stage Panel Data Analysis: Focusing on the Joint Effect of ICT and R&D.

Abstract

The final aim of innovation is not innovation itself but enhancing profits or sales. To complete the theory of innovation, it is required to show whether innovation contributed to improvements in business performance. A further focus of this paper is on the role of ICT and R&D in the innovation process. ICT plays a vital role in absorbing information from outside the firm, while R&D is essential for assimilating obtained information with existing resources to create something novel. The focus of this paper is on the joint effect of these two factors. The estimation is based on a two-stage probit instrumental variable (IV) panel model and the authors' own survey data of 2012 and 2018. The dependent variables are innovation in the first equation and sales in the second. The results obtained show that (i) innovation enhances sales; (ii) R&D is significant for innovation; (iii) ICT is not significant for either of the equations; and (iv) the cross term of R&D and ICT is significant for innovation, implying that ICT is an enabler of innovation. These are novel results.