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2. Former studies and derivation of the hypotheses
2.1 Location, branch of industry and innovation activities
Some studies emphasize the regional differences in the innovations and performance of a firm
(Almus, 2002; Audretsch, 1995; Covin et al., 1999; Hoogstra and Van Dijk, 2004; Hölzl, 2009;
Keeble, 1997; Mendonca et al., 2004; Vaessen and Keeble, 1995). However, relatively little or no
regional differences in innovation activities and performance were discovered by Littunen and
Tohmo (2003) or by North and Smallbone (2000).
According to the resource–munificence and regional competitiveness theories it is believed that
urban areas have higher performance and more original innovations than peripheral regions (Covin
and Slevin, 1998; Keeble, 1997; Ritsilä, 1999). Mendonca et al., (2004) discovered country-based
differences in producing and exploiting IPRs in European countries. Keeble (1997) and Ritsilä
(1999) found national innovation and performance diversity in different regions.
It could be argued that locational diversity would create diverse opportunities to innovate and to
exploit the innovations. The prior discussion about R&D activities, performance and regional
development has pointed out the role of context and its specific structural and situational
characteristics. One fallacy comes from the genre of venture capital research where innovation
activities are usually seen as typical characteristics of those businesses backed by venture capital.
However, the share of those companies that succeed in receiving venture capital is very low (2-5 %)
and regional distribution is biased to the most developed regions, usually defined as urban areas.
This could lead to a conclusion that the location of the firm may have an impact on the probability
of being an innovative SME.
Previous studies (Smallbone et al., 1995; Vaessen and Keeble, 1995) have raised the influence
of the branch of industry on regional innovation activities and performance outcomes. Brouwer and
Kleinknecht (1999) found that the branches of industries such as manufacturing with high-tech
potential tend to have a higher propensity to patent than the other sectors. Nelson and Winter (1977)
pointed out that the underlying knowledge conditions and the development phase vary from branch
to branch. According to Thornhill (2006), innovation is more common when industry dynamism is
high, and innovative firms are likely to enjoy revenue growth, irrespective of the industry in which
they operate.
Arundel and Kabla (1998) state that patents may be a poor measure of innovations in branches
of industry where IPR activity is low or the quality of R&D outputs is mainly incremental since the
large majority of R&D results are not patented. These sectors include for example food, tobacco,
petroleum refining and basic metal industries. On the other hand, the amount of patents may be a