Explaining growth differences across firms: the interplay between innovation and management practices

CSC Working paper n.2 2018

Author: Livio Romano

This paper provides first empirical evidence of the joint effects that innovation strategies and human resource management practices exert on firm growth. By exploiting unique information from a large sample of Italian manufacturing companies in the very recent years, it shows that investing in technology and implementing performance-based pay policies are both positively associated with a significant turnover, employment and labor productivity growth premium.

However, their joint adoption does not necessarily sum the two effects. In particular, performance based rewards boost growth of non-innovators and of firms pursuing relatively simple innovation strategies, centered around the acquisition of embodied technology. For firms strongly relying on R&D as an additional lever for product and process upgrading, the estimated effect of having in place monetary incentive mechanisms is null or even negative.

JEL Classification: L20; M21; O30

Keywords: Heterogeneity, Innovation, Management Practices, Firm Growth.