Innovation in Large and Small Firms: An Empirical Analysis

Abstract

The total number of innovations in firms is negatively related to concerntration and unionization and positively related to research and development (R&D), skilled labor, and the degree to which large firms comprise the industry. Large and small firms are affected differently by these factors. While it is true that the total number of innovations is closely related to R&D expenditures, the number of innovations increases with larger industry R&D expenditures but at a decreasing rate. As concentration increases, industry innovation tends to decrease. The results are based on an empirical analysis using a new measure of innovation: the number of innovations in each 4-digit Standard Industrial Classification (SIC) industry recorded in 1982. The innovations were classified according to SIC code and according to firm size. The number of large-firm and small-firm innovations is substituted as a dependent variable into the regression model.