R&D, firm growth and the role of innovation persistence: an analysis of Finnish SMEs and large firms

R&D investment and growth in SMEs and large firms relate in a complex way. This paper analyses what role persistence of innovation output plays in shaping that relationship. We apply a vector auto-regression model to Finnish firm-level data and summarize the lead-lag relationship and complex co-movements of R&D growth and firm growth series. We found only continuous product and process innovators to have positive associations between R&D growth and sales growth. Also the associations between sales growth and subsequent R&D growth were stronger for continuous innovators than for occasional innovators, but only for product innovators. In the case of process innovators it is the occasional innovators that exhibit a stronger association between sales growth and subsequent R&D growth. In addition, our results vary between large and small firms. We express the need for further research on innovation dynamics and growth of SMEs analysing the interactions between different innovation activities.