Online citations, reference lists, and bibliographies.
← Back to Search

The Payback Of Effective Innovation Programs: Empirical Evidence From Firms That Have Won Innovation Awards

G. Zhang, J. Yu, Yusen Xia
Published 2014 · Economics

Cite This
Download PDF
Analyze on Scholarcy
Share
Despite the widely held belief of the importance of innovation, the connection between innovation and firm performance is empirically inconclusive, partially owing to the limitations of existing innovation measures, which tend to ignore the effectiveness of innovation programs. In this study, we use the winning of innovation awards as a proxy for the effective execution of innovation. We conducted event-study analyses based on data from more than 1000 publicly traded firms that won innovation awards between 1998 and 2003. Our statistical tests provide strong evidence that the performance of award-winning firms is significantly higher as compared with several sets of control firms. Over an 8-year period, starting from 4 years before to 3 years after the year of winning the first innovation award, the test sample's mean (median) change in return on assets is nearly 33% (24%) higher than that of a control sample. The evidence also suggests that effective innovation programs can increase firms' revenue, cost efficiency, and market valuation. Over the period, the control-adjusted mean (median) change in sales, cost per dollar of sales, and Tobin's Q are 39.28% (20.71%), -5.52% (-3.80%), and 23.70% (3.16%), respectively. Panel data regression analysis provides additional insights on the performance impact of effective innovation programs. The results show that award winners are not only financially more successful but also enjoy an indirect benefit through better R&D execution, which increases firm profitability in both the short term and long term.
This paper references
10.1002/(SICI)1097-0266(199601)17:1<73::AID-SMJ795>3.0.CO;2-N
Institutional investors and firm innovation : a test of competing hypotheses
R. Kochhar (1996)
10.1002/SMJ.461
Relationship between innovativeness, quality, growth, profitability, and market value
Hee-Jae Cho (2005)
10.5465/256996
Generational Technological Change: Effects of Innovation and Local Rivalry on Performance
M. Lawless (1996)
10.1287/MNSC.42.8.1199
The impact of environmental management on firm performance
R. Klassen (1996)
10.1111/1540-5885.1310003
Measuring development performance in the electronics industry
C. Loch (1996)
10.1023/A:1008100206266
Do Small Innovating Firms Outperform Non-Innovators?
M. Freel (2000)
10.5465/257058
INTERORGANIZATIONAL LINKS AND INNOVATION: THE CASE OF HOSPITAL SERVICES
J. Goes (1997)
10.1002/SMJ.640
Explicating dynamic capabilities: the nature and microfoundations of (sustainable) enterprise performance
D. Teece (2007)
10.1002/SMJ.511
Disruptiveness of innovations: measurement and an assessment of reliability and validity
V. Govindarajan (2006)
10.5465/256948
International Diversification: Effects on Innovation and Firm Performance in Product-Diversified Firms
M. Hitt (1997)
10.1016/J.JOM.2006.02.002
The impact of enterprise systems on corporate performance: A study of ERP, SCM, and CRM system implementations
K. Hendricks (2007)
10.1002/SMJ.4250100709
Top management and innovations in banking: Does the composition of the top team make a difference?
Karen A. Bantel (1989)
Panel B: Changes in Performance Over Varying Time Periods −1 to +1 84 32
10.1287/MNSC.38.2.157
Profiles of Product Innovators Among Large U.S. Manufacturers
N. Capon (1992)
10.1108/01409170710722955
Does innovation lead to performance? An empirical study of SMEs in Taiwan
C. Lin (2007)
10.5465/1556340
IS CEO PAY IN HIGH-TECHNOLOGY FIRMS RELATED TO INNOVATION?
D. Balkin (2000)
Innovation Tournaments
C Terwiesch (2009)
10.2307/2392494
Ideas, Complexity, and Innovation.
J. Blau (1979)
10.1287/mnsc.49.6.751.16026
Overcoming Local Search Through Alliances and Mobility
Lori Rosenkopf (2003)
10.1002/(SICI)1097-0266(200005)21:5<603::AID-SMJ101>3.0.CO;2-3
Corporate social responsibility and financial performance: correlation or misspecification?
A. Mcwilliams (2000)
Characterization of Innovations Introduced on the U . S . Market in 1982
K. Edwards (1984)
R&D spending holds steady in slump—Big companies invest to grab sales in recovery: The iPod lessson
J Scheck (2009)
10.1002/SMJ.157
Technological acquisitions and the innovation performance of acquiring firms: a longitudinal study
G. Ahuja (2001)
10.1287/MNSC.43.4.422
Delays in new product introductions and the market value of the firm: the consequences of being late to the market
K. Hendricks (1997)
10.5465/256745
Shareholder Value Creation During R&D Innovation And Commercialization Stages
Kathryn M. Kelm (1995)
We checked a number of other innovation awards (e.g., Du- Pont Awards for Innovation in Packaging, Innovation Excellence Award, Best of What's New, etc.) and found similar requirement for application
10.5465/AMJ.2007.24162388
Innovation, Appropriability, And The Underpricing Of Initial Public Offerings
Michael B. Heeley (2007)
10.1287/MNSC.1060.0576
Exploratory Innovation, Exploitative Innovation and Peformance: Effects of Organizational Antecedents and Environmental Moderators
J. J. P. Jansen (2006)
10.1002/SMJ.4250130104
The diffusion of technological innovation in the commercial banking industry
J. Pennings (1992)
10.1287/mnsc.1070.0703
Valuing R&D Projects in a Portfolio: Evidence from the Pharmaceutical Industry
K. Girotra (2007)
10.2307/2393553
ABSORPTIVE CAPACITY: A NEW PERSPECTIVE ON LEARNING AND INNOVATION
W. Cohen (1990)
10.1002/smj.707
Do Science and Money Go Together? The Case of the
French Biotech Industry (2008)
10.1016/J.JCORPFIN.2005.07.001
The specification and power of tests to detect abnormal changes in corporate investment
Michael J. Alderson (2006)
10.1016/J.JBUSVENT.2005.06.001
Knowledge, innovation and firm performance in high- and low-technology regimes
S. Thornhill (2006)
10.1287/orsc.1070.0291
Building Dynamic Capabilities: Innovation Driven by Individual-, Firm-, and Network-Level Effects
F. Rothaermel (2007)
Characterization of Innovations Introduced on the U.S
K. Edwards (1984)
Innovation 2007: A BCG senior management
J. P. Andrew (2007)
10.1002/SMJ.318
Understanding dynamic capabilities
Sidney Winter (2003)
10.1002/SMJ.4250030407
Diversification strategy and profitability
R. Rumelt (1982)
10.1002/SMJ.4250160922
The effect of introducing important incremental innovations on market share and business survival
C. Banbury (1995)
10.1287/mnsc.1080.0919
Patents and the Performance of Voluntary Standard-Setting Organizations
Marc Rysman (2008)
Innovation 2007: A BCG senior management survey Is CEO pay in high-technology firms related to innovations?
J P Andrew (2000)
10.1590/S0034-75901961000200012
The theory of economic development
R. Richers (1961)
10.1287/mnsc.1090.1018
Technological Innovation and Acquisitions
Xinlei Zhao (2009)
10.1016/0304-405x(76)90026-x
Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure
M. Jensen (1976)
10.1002/SMJ.4250140803
Innovative productivity and returns to scale in the pharmaceutical industry
S. B. Graves (1993)
Getting to Innovation: How Asking the Right Questions Generates the Great Ideas Your Company Needs
Arthur B. VanGundy (2007)
10.1086/296552
The Impact of New Product Introductions on the Market Value of Firms
P. Chaney (1991)
10.1002/SMJ.884
Effects of alliances, time, and network cohesion on the initiation of foreign sales by new ventures
Jifeng Yu (2011)
How companies approach innovation: A Mckinsey global survey
J. Barsh (2007)
10.2307/2393253
Organizational size and change: Diversification in the savings and loan industry after deregulation
Heather A. Haveman (1993)
10.1002/1097-0266(200008)21:8<791::AID-SMJ121>3.0.CO;2-K
Interorganizational alliances and the performance of firms: A study of growth and innovation rates i
T. Stuart (2000)
10.2307/2393031
Organizational innovation and performance: The problem of "organizational lag."
F. Damanpour (1984)
10.1287/mnsc.1080.0898
Optimal Patenting and Licensing of Financial Innovations
P. Kumar (2008)
10.1287/orsc.14.2.107.14990
The Dynamics of Innovative Activity and Competitive Advantage: The Case of Australian Retail Banking, 1981 to 1995
P. Roberts (2003)
10.1002/(SICI)1097-0266(199907)20:7<655::AID-SMJ44>3.0.CO;2-P
Product innovation, product–market competition and persistent profitability in the U.S. pharmaceutical industry
P. Roberts (1999)
10.1016/S1047-8310(00)00024-9
Unraveling the links between dimensions of innovation and organizational performance
S. Gopalakrishnan (2000)
10.1080/10438590000000001
Competencies, Innovation And Profitability Of Firms
A. Leiponen (2000)
10.1002/SMJ.522
Breakthrough innovations in the U.S. biotechnology industry: the effects of technological space and geographic origin
Anupama Phene (2006)
10.1002/SMJ.275
The dynamics of product innovation and firm competences
Erwin Danneels (2002)
10.1287/mnsc.1070.0805
The Effect of Product Introduction Delays on Operating Performance
K. Hendricks (2008)
10.1287/mnsc.1040.0208
Don't Fence Me In: Fragmented Markets for Technology and the Patent Acquisition Strategies of Firms
Rosemarie H. Ziedonis (2004)
10.1002/(SICI)1097-0266(199708)18:7<509::AID-SMJ882>3.0.CO;2-Z
DYNAMIC CAPABILITIES AND STRATEGIC MANAGEMENT
D. Teece (1997)
10.1287/mnsc.1080.0873
Fragmented Property Rights and Incentives for R&D
D. Clark (2008)
An extraordinary item is a gain or loss in a firm's earnings due to a non-recurring event that is out of the firm's control
provided a summary of early studies on the relevant topic
Capon (1990)
Money isn't everything: Lavish R&D budgets don't guarantee performance
B Jaruzelski (2005)
10.5465/AMJ.2005.18803924
When Does Lack of Resources Make New Firms Innovative
Riitta Katila (2005)
10.1002/SMJ.715
Control of Intellectual Assets in Client Relationships: Implications for Innovation
A. Leiponen (2008)
How companies approach innovation: A Mckinsey global survey. McKinsey Q
J Barsh (2007)
10.1287/MNSC.36.10.1143
Determinants of Financial Performance: A Meta-Analysis
N. Capon (1990)
The impact of enterprise systems on corporate performance
Fakhraddin Maroofi (2011)
10.1108/01443570710750268
Innovation types and innovation management practices in service companies
A. Oke (2007)
Payback: Reaping the Rewards of Innovation
Harold L. Sirkin (2007)
10.1002/(SICI)1097-0266(199909)20:9<811::AID-SMJ52>3.0.CO;2-#
Pioneering advantages in manufacturing and service industries: empirical evidence from nine countries
X. Song (1999)
10.1287/mnsc.1040.0349
Collaborative Networks as Determinants of Knowledge Diffusion Patterns
J. Singh (2005)
IBM piles up patents, but quantity isn't king
S Levine (1953)
10.1287/MNSC.42.3.415
Quality awards and the market value of the firm: an empirical investigation
K. Hendricks (1996)
Payback: Reaping the Rewards of Innovation
Ernest R. Gilmont (2007)
10.1287/MNSC.1040.0358
The Financial Impact of ISO 9000 Certification in the United States: An Empirical Analysis
C. Corbett (2005)
10.1287/MNSC.43.9.1258
Does Implementing an Effective TQM Program Actually Improve Operating Performance? Empirical Evidence from Firms That Have Won Quality Awards
K. Hendricks (1997)
Corporate social responsibility and financial performance: Correlation or misspecification? Strateg
A Mcwilliams (2000)
10.1007/978-1-4419-9804-0_7
First Mover Advantages
F. Xie (2011)
10.1002/SMJ.675
Firm performance: the interactions of corporate social performance with innovation and industry differentiation
C. Hull (2008)
10.1111/1467-8462.00285
Innovation and Performance: Benchmarking Australian Firms
S. Feeny (2003)
10.1002/SMJ.308
The capital structure implications of pursuing a strategy of innovation
J. O'brien (2003)
10.1016/0304-405X(96)84701-5
Detecting abnormal operating performance: The empirical power and specification of test statistics
B. Barber (1996)
10.3386/W3301
Patent Statistics as Economic Indicators: a Survey
Z. Griliches (1990)
10.2307/257085
Social Capital and Value Creation: The Role of Intrafirm Networks
W. Tsai (1998)
10.5465/3069392
Product Innovation Strategy and the Performance of New Technology Ventures in China
Haiyang Li (2001)
10.1162/003465399558265
Citation Frequency and the Value of Patented Inventions
D. Harhoff (1999)
10.2307/1884150
The Sequence from Invention to Innovation and Its Relation to Economic Growth
W. R. Maclaurin (1953)
10.2189/asqu.51.3.451
Unpacking the Concept of Virtuality: The Effects of Geographic Dispersion, Electronic Dependence, Dynamic Structure, and National Diversity on Team Innovation
Cristina B. Gibson (2006)
Characterization of Innovations Introduced on the U.S. Market in 1982. The Futures Group and U.S. Small Business Administration
K Edwards (1984)



This paper is referenced by
10.2139/ssrn.3292518
Innovation Competition, Payouts and Cash Holdings
Diana Shao (2018)
10.1145/3373744.3373754
The Impact of the SET Awards on Return on Equity of Listed Companies in the Stock Exchange of Thailand
Boontarika Paphawasit (2019)
10.1108/cg-02-2020-0081
Does a diverse board matter? A mediation analysis of board racial diversity and firm performance
Ashok Vairavan (2020)
Research on Effective Innovation Measures of Enterprise Economic Management Based on Innovation Ability Training
Gao Yu-ping (2019)
10.1108/sampj-10-2019-0375
The impact of eco-innovation on the stock returns of technology-based KIBS: role of eco-innovation type and its degree of novelty
Dawid Szutowski (2020)
10.1016/j.eswa.2014.02.010
Innovation quality in knowledge cities: Empirical evidence of innovation award competitions in Finland
T. Makkonen (2014)
10.1509/jm.15.0150
(When) Does Third-Party Recognition for Design Excellence Affect Financial Performance in Business-to-Business Markets?
D. Boyd (2018)
Self-Managing Organizations in the context of Entrepreneurial Innovation
Kenneth Kinneen (2018)
10.1108/ecam-12-2018-0566
Exploring the missing link between top management team characteristics and megaproject performance
Le Yun (2020)
10.1111/JSCM.12203
How Supplier Economies of Scale Drive Supplier Selection Decisions
Florian Badorf (2019)
10.2139/ssrn.2178114
Customer-Oriented Innovation and Firm Performance
J. Chen (2013)
10.1080/14479338.2018.1428104
Abnormal market valuation and new product announcements: the role of advancement stage and innovativeness
Dawid Szutowski (2018)
10.1111/JPIM.12427
The Imitator's Dilemma: Why Imitators Should Break Out of Imitation
A. Doha (2018)
10.1016/J.JBUSRES.2019.04.015
R&D innovation indicator and its effects on the market. An empirical assessment from a financial perspective
Daniela Coluccia (2019)
Organization of the Purchasing Function for Innovation
Jasna Prester (2014)
10.1111/POMS.12525
Product Design Awards and the Market Value of the Firm
Yusen Xia (2016)
Semantic Scholar Logo Some data provided by SemanticScholar