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The influence of industry downturns on the propensity of product versus process innovation

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  • Luca Berchicci
  • Christopher L. Tucci
  • Cristiano Zazzara

Abstract

This article sheds light on how industry fluctuations affect firms’ propensity to innovate. We test two seemingly conflicting arguments that suggest how firms are more or less inclined to engage in innovation activities during industry fluctuations. By studying a panel of 622 Italian manufacturing firms during the period 1995–2003, we show how differentiating between product and process innovation may help reconcile the theory of opportunity cost of innovation with the cash-flow effect argument. We find that industry downturns are related to product and process innovation in different ways: firms tend to invest in product innovation rather than process innovation in downturns. The findings have implications for both theory (showing when the opportunity cost of innovation dominates) and research design (showing the importance of both the input and output measures in innovation studies and how they might influence the results).

Suggested Citation

  • Luca Berchicci & Christopher L. Tucci & Cristiano Zazzara, 2014. "The influence of industry downturns on the propensity of product versus process innovation," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 23(2), pages 429-465.
    • Handle: RePEc:oup:indcch:v:23:y:2014:i:2:p:429-465.
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    File URL: http://hdl.handle.net/10.1093/icc/dtt011
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    Cited by:

    1. Wang, Quan-Jing & Feng, Gen-Fu & Chen, Yin E. & Wen, Jun & Chang, Chun-Ping, 2019. "The impacts of government ideology on innovation: What are the main implications?," Research Policy, Elsevier, vol. 48(5), pages 1232-1247.
    2. Zouaghi, Ferdaous & Sánchez, Mercedes & Martínez, Marian García, 2018. "Did the global financial crisis impact firms' innovation performance? The role of internal and external knowledge capabilities in high and low tech industries," Technological Forecasting and Social Change, Elsevier, vol. 132(C), pages 92-104.
    3. Krammer, Sorin, 2021. "Navigating The New Normal: Which Firms Have Adapted Better To The Covid-19 Disruption?," MPRA Paper 109485, University Library of Munich, Germany.
    4. Krammer, Sorin M.S., 2022. "Navigating the New Normal: Which firms have adapted better to the COVID-19 disruption?," Technovation, Elsevier, vol. 110(C).
    5. Claudio Fassio, 2018. "Export-led innovation: the role of export destinations," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 27(1), pages 149-171.
    6. Silvestri, Daniela & Riccaboni, Massimo & Della Malva, Antonio, 2018. "Sailing in all winds: Technological search over the business cycle," Research Policy, Elsevier, vol. 47(10), pages 1933-1944.
    7. Andriana G. Dimakopoulou & Nikos Chatzistamoulou & Kostas Kounetas & Kostas Tsekouras, 2023. "Environmental innovation and R&D collaborations: Firm decisions in the innovation efficiency context," The Journal of Technology Transfer, Springer, vol. 48(4), pages 1176-1205, August.
    8. Vicente Salas-Fumás & Javier Ortiz, 2019. "Innovations’ Success and Failure in the Business Cycle," Sustainability, MDPI, vol. 11(15), pages 1-22, August.
    9. Taalbi, Josef, 2017. "What drives innovation? Evidence from economic history," Research Policy, Elsevier, vol. 46(8), pages 1437-1453.
    10. Knudsen, Eirik Sjåholm, 2019. "Bad weather ahead: Pre-recession characteristics and the severity of recession impact," Journal of Business Research, Elsevier, vol. 104(C), pages 118-130.
    11. Martin Sanchez-Gomez & Gabriele Giorgi & Georgia Libera Finstad & Federico Alessio & Antonio Ariza-Montes & Giulio Arcangeli & Nicola Mucci, 2021. "Economic Stress at Work: Its Impact over Absenteeism and Innovation," IJERPH, MDPI, vol. 18(10), pages 1-15, May.

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