Innovation and firm performance: Evidence from Finnish public companies

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School of Business | Master's thesis
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In this paper, I examine the innovation activities and effect of commercialized innovations on firm performance, measured with productivity and market value, of Finnish public companies during 1988-2017. This study provides novel information on innovations which is a complex matter but very important for both private and public sector growth and competitiveness. There is no similar previous study with commercialized innovations. The topic is also current for Finland due to a recent report, Securing Finland’s competitiveness and economic growth in the 2020s, by Erkki Ormala made for the Ministry of Economic Affairs and Employment of Finland and published in January 2019. His report finds that the conditions for innovating in Finland are weakening and that companies are moving their innovation activities abroad seeking better cooperation opportunities and financing for innovation. I show supporting evidence of an overall downward trend in the number of innovations, patents, R&D investments and public subsidies. Companies are also applying for international patents instead of Finnish patents. Another worrying finding is a decline in Finnish innovation productivity measured by the number of innovations in relation to R&D expenditures. Building on this, I analyze unique innovation data collected by Technical Research Centre of Finland (VTT). The study and methods are largely based on the work by Bloom and Van Reenen (2002) with the biggest difference being my use of commercialized innovations instead of patents as a proxy for technology. The study finds innovations to have significant impact on performance and firms who innovate to be 10% more productive than those who do not. First main question finds that innovations themselves have a negative effect on productivity, but that higher level of innovation complexity would increase productivity. Second, I find a positive effect of innovations on market value and that higher innovation complexity has a negative effect on market value in the year of commercialization but turns positive in the following year of commercialization. These main results support the importance of innovation and innovation complexity on firm performance. To secure sustainable growth and competitiveness, companies would be recommended to focus on innovation productivity and the government should follow Ormala’s (2019) suggestions on strengthening applied research, innovation funding and collaboration between operators.
Thesis advisor
Puttonen, Vesa
innovation, complexity, performance, productivity, market value
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