Managerial capacity in the innovation process
and firm profitability
Giovanni Cerulli and
Bianca Potì
CNR - National Research Council of Italy
CERIS - Institute for Economic Research on Firm and Growth
Via dei Taurini 19, 00185 Roma, ITALY
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Abstract: This
paper studies at firm level the relation between managerial capacity in doing
innovation and profitability. Moving along the intersection between the
evolutionary/neo-Schumpeterian theory and the Resource-Based-View of the firm,
we prove econometrically that managerial efficiency in mastering the
production of innovation is an important determinant of firm innovative
performance and market success, and that it complements traditional
Schumpeterian drivers. By using a Stochastic Frontier Analysis, we provide a
“direct” measure of innovation managerial capacity, then plugged into a profit
margin equation augmented by the traditional Schumpeterian drivers of
profitability (size, demand, market size and
concentration, technological opportunities, etc.) and other control-variables. We run both a OLS
and a series of Quantile Regressions to better stress the role played by
companies’ heterogeneous response of profitability to innovative managerial
capacity at different points of the distribution of the operating profit
margin.Results find evidence of an average positive effect
of the innovation managerial capacity on firm profitability, although quantile
regressions show that this “mean effect” is mainly driven by a stronger
magnitude of the effect for lower quantiles (i.e., for firms having negative or
low positive profitability). It means that lower profitable firms might gain
more from an increase of managerial efficiency in doing innovation than more
profitable businesses.