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2 Literature review and conceptual framework (Bhide, 2000). Furthermore, growing, innovative SMEs may face greater financial challenges or pressures when IPR efforts and high growth periods coincide than other firms, since the generation of both IPRs and high growth requires abundant resources (Markides, 1998; Moskowitz and Vissing-Jørgensen, 2002). Other empirical studies have highlighted the complex nature of the relationships between innovations, growth and success of firms. Some of these studies have found that innovators have not experienced sales or employment growth, and the distribution of innovators’ growth rates seems to be sometimes highly negatively skewed (Freel 2000). On the other hand, the correlation between sales of innovative products and patenting is far more positive (Brouwer and Kleinknecht 1999). These relationships also seem to be time dependent (Virtanen and Heimonen, 2011, article III). Moreover, growth and success seem to have varying effects on innovation in different branches of industries. Audretsch (1995) studied the effects of growth and profitability on innovation activity in diverse branches of industry, and concluded that profitability positively affects innovative activities of firms in hightechnology industries, whereas growth generates more innovations in lowtechnology industries. Markides (1998) and Moskowitz and Vissing-Jørgenssen (2002) discovered that the creation of new innovations seems to require a great deal of resources. It has been estimated that almost two-fifths (38%) of commercialisations of product innovations fail to progress from original ideas to commercially successful products. In addition, the time lags from invention to innovation may be very long, which causes a lot of uncertainty. It may take on average 10-12 years for new ventures’ returns on investments to equal those of mature businesses, or 7-15 years to proceed from radical invention to financial success (Kanter 1985). Moreover, small size, longitudinal development efforts and limited available financial resources may cause financial challenges during innovative growth periods. The financial profile of innovative growing SMEs may often include low liquidity and high debt ratios; characteristics usually associated with failed firms. Public R&D funding seems to be one of the most influential instruments for supporting and increasing innovation and the generation of IPRs in firms (Santarelli and Piergiovanni, 1996). Lerner (2002) concluded that public venture investments should focus especially on technologies that are not currently popular among venture investors and provide follow-on capital to firms that are already funded by venture capitalists or other finance providers during periods when venture inflows are falling. The role of government should be to encourage sharing of both the risks and returns 24
25 2 Literature review and conceptual framework between the providers of finance and the entrepreneurs. In many circumstances financial support also has wider positive impacts. For instance, Santarelli and Piergiovanni (1996) found that spillovers from both private and public R&D expenditures are positively correlated with the development of product innovations at the regional level. However, financial resources alone are not sufficient for successful innovation activities and high performance. Notably, large firms with adequate financial resources may require other specialized assistance to support their innovations. Tether (1998) argued that financial support may even lead to the selection of projects that may not be optimal from an innovations perspective, which is likely to increase the number of imitations with little genuine innovation. Moreover, as Venkataraman (2004, pp. 162- 166) argued, “There have to be also resources (apart from financial) that are engaged in the process of ensuring that good ideas are being developed, that somebody actually starts the firm, makes the prototype, gets the first customer, develops the product and places it into a competitive product situation”. Overall, from the above discussion we may conclude that important factors affecting innovativeness include a range of financial variables such as solvency, profitability, liquidity, public R&D finance, but numerous other factors are also important. 2.3 Characteristics of HGS SMEs and methodological challenges 2.3.1 Characteristics of HGS SMEs Characteristics of small firm growth have been topics of rich empirical research and academic discussion (Acs et al., 2008; Barringer et al., 2005; Davidsson et al., 2009; Kiviluoto et al., 2011; Littunen and Virtanen, 2009; Parker et al., 2010), and a wide spectrum of entrepreneurship and management theories has been used in the applied theoretical backgrounds and frameworks. Penrose (1959) focused on firm-level analysis of economic performance, but stressed the critical roles of single actors and resource slacks in firm growth theory. Davidsson et al. (2005) noted that there have been numerous empirical studies on small firm growth, but few have investigated the crucial relationship between growth and profitability. Furthermore, as Birley and Westhead (1990) pointed out, success has even been conveniently (but erroneously) regarded as a substitute for growth. The growth and success of small firms have been examined, singly and in combination, in several studies (Davidsson et al., 2009; Cowling, 2004; Glancey, 1998; Markman and Gartner, 2002; Steffens et al., 2009). The key
Page 3 and 4: Aalto University publication series
Page 5: Author Tomi Heimonen Name of the do
Page 9 and 10: Acknowledgements This dissertation
Page 11 and 12: CONTENTS PART 1: Overview of the di
Page 13: List of Articles This thesis is bas
Page 16 and 17: 1 Introduction Some scholars claim
Page 18 and 19: 1 Introduction In addition, the dur
Page 20 and 21: 1 Introduction Figure 1: Framework
Page 22 and 23: 1 Introduction factors that affect
Page 24 and 25: 1 Introduction 1.4 Key concepts and
Page 26 and 27: 2 Literature review and conceptual
Page 46 and 47: 3 Research methodology Constructivi
Page 48 and 49: 3 Research methodology and the meth
Page 50 and 51: 3 Research methodology The data use
Page 52 and 53: 3 Research methodology 3.4 Models a
Page 54 and 55: 3 Research methodology reliable. Se
Page 56 and 57: 3 Research methodology concluded th
Page 58 and 59: 4 Results, evaluation of the studie
Page 70 and 71: References Abetti, P. A. (2001). Ac
Page 72 and 73: References Bhide, A. (2000). The or
Page 74 and 75: References Creswell, J. W. (2003).
Page 76 and 77: References Golafshani, N. (2003). U
Page 78 and 79: References Leitch, C., Hill, F., an
Page 80 and 81: References Pellikka, J. and Laurone
Page 82 and 83: References Storper, M. (1992). The
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Appendixes Overview: Appendix 1: Ke
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Appendixes High growth When examini
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Appendixes profitability, liquidity
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Appendixes Appendix 1 Continued (Ke
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Appendixes Appendix 2 Construction
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Appendixes Appendix 2 Continued (Co
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not increased compared to Eastern F
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propensity for risk taking (Covin a
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2. Former studies and derivation of
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firm’s annual sales growth (Arund
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H4. Firm success has an impact on t
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other branches in which employment
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and Rao, 2008). Because of the unev
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Table 1. Characteristics of the dat
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firms from other firms. The data in
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Table 2. Logistic Regression analys
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Public R&D funding was shown to inc
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References Achtenhagen, L., Naldi,
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Kanter, R. (1985), “Supporting in
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Appendix 1. Corporate population ch
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Appendix 3. Distribution of personn
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12 Int. J. Business and Globalisati
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14 T. Heimonen and M. Virtanen we u
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392 Int. J. Entrepreneurial Venturi
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394 J. Siikonen et al. firms’ gro
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396 J. Siikonen et al. generally re
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398 J. Siikonen et al. determinants
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400 J. Siikonen et al. 3.1 National
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402 J. Siikonen et al. 2 the firm
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404 J. Siikonen et al. 4 Results 4.
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414 J. Siikonen et al. Delmar, F.,
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