Inflexibility and corporate innovation: Cross-country evidence

Employing an international sample from 25 economies, we investigate the relationship between firm-level scale inflexibility and corporate innovation. The baseline result shows that inflexibility is positively associated with innovation activities. In the mechanism analyses, we find that the positive relationship is mainly driven by firms with higher contraction inflexibility and in less stable external environments. The positive relationship is also stronger for firms in industries with higher concentration, and in economies with stronger creditor rights. Finally, we observe a weaker relationship in multinational enterprises. Collectively, our findings suggest that scale inflexibility creates a stable environment for corporate innovation.