Innovation and Economic Performance: An Empirical Study of Innovation in American Listed Biotech Firms

Abstract

This thesis explores the relationship between innovation and economic performance, in order to contribute to the vast, yet inconclusive literature on this field. This relationship is explored through the application of a fixed effect regression model to an unbalanced panel of variables of 31 biotechnology firms over a ten-year period. The dynamic capabilities framework facilitates the identification of innovation indicators and shapes the hypothesized positive relationship. The identified innovation indicators applied are: licensing-in, R&D investment, patents and licensing- out. The economic performance indicators applied are: revenue, EBIT, ROA and market capitalization. The study is conducted as a retrospective quasi experiment, which combines data from three databases. The results of this study do not support the hypothesized relationship. Yet, the findings of this thesis indicate three interesting patterns in the relationship between innovation and economic performance for biotech firms. Firstly, market capitalization is most significantly related with the innovation indicators, compared to the other economic performance indicators. Secondly, R&D investment is most significantly related with the economic performance indicators, compared to the other innovation indicators. Thirdly, the nature of the relationship between innovation indicators and economic performance indicators is changing direction when switching from a clean to a lagged innovation indicator variable. The third pattern thus suggests that temporal considerations are important when exploring the relationship between innovation and performance. While the findings are statistically significant for the relationship between the indicators in the biotech context, the imperfect research design limits the conclusiveness on the relationship between innovation as a concept and economic performance. This thesis thus contributes to the literature on innovation and economic performance by adding to the understanding of the commonly applied innovation indicator, R&D investment, and the economic performance indicator, market capitalization, as well as it uncovers avenues for future research on the subject.