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Oxford Economic Papers Advance Access published online on May 15, 2009
Oxford Economic Papers, doi:10.1093/oep/gpp012
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© Oxford University Press 2009 All rights reserved

Innovation and the determinants of company survival

Hielke Buddelmeyer*, Paul H. Jensen{dagger}, and Elizabeth Webster{ddagger}

*Melbourne Institute of Applied Economic and Social Resarch and IZA Bonn
{dagger}Melbourne Institute of Applied Economic and Social Research, and Intellectual Property Research Institute of Australia
{ddagger}Melbourne Institute of Applied Economic and Social Research, Alan Gilbert Building, The University of Melbourne, Parkville VIC 3010, Australia; and Intellectual Property Research Institute of Australia, The University of Melbourne; e-mail: e.webster{at}unimelb.edu.au

JEL classifications: C41, L10, O31


  Abstract

Although many companies compete through the development of new technologies and products, it is well known that innovation is inherently risky and therefore may increase the ex ante likelihood of both exceptional company performance and bankruptcy. However, existing empirical studies consistently find a positive relationship between innovative activity and company survival. We argue that this conclusion may be a result of a simple selection effect caused by the degree of uncertainty embodied in the innovation proxies used. Using a panel of almost 300,000 Australian companies, we estimate a piecewise-constant exponential hazard rate model to examine the relationship between innovation and company survival. As expected, we find that the degree of uncertainty embodied in different innovation proxies does shape the pattern of company survival.


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