Young innovative companies: Are they high performers in transition economies? Evidence for Vietnam
Summary (2 min read)
Introduction
- Whereas advanced countries call for policies supporting the formation of innovative firms with the expectation of gaining from their breakthrough innovations (Klepper, 1996; Veugelers, 2008; Rosenbusch et al., 2011) , developing countries generally focus on policies aimed at improving their institutional infrastructure and financial system to fulfill the gap.
- Recently, innovation scholars have started to compare the profitability of different types of innovative and non-innovative firms (for a survey, see Czarnitzki and Delanote, 2013) .
- The dataset is derived from the annual enterprise survey conducted by the General Statistics Organization (GSO) of Vietnam.
- Section 3 gives an overview of the National System of Innovation (NSI) in Vietnam in relation to innovative activities and outlines the research hypotheses.
4.2.1 Dependent variable
- Abundant entrepreneurial opportunities that are constantly available for firms' exploitation (Santarelli and Tran, 2012) .
- All firms, regardless of size, sector, location, and ownership types are actively pursuing these arising entrepreneurial opportunities to see improvements in profitability.
- Thus in general, profit measures do reflect entrepreneurial efforts of all firms.
4.2.2. Independent variables
- The authors also investigate the interaction effect of their dummies classifying different types of firms and R&D intensity.
- These interaction terms indicates the indirect impact of technological change conducted by YICs, PICs and SYCs on their respective entrepreneurial performance.
- Innovation investment has three components: (i) construction and assembly works, (ii) machinery and equipment, and (iii) technology renovation.
- Whereas R&D reflects the internal input, embodied technological change represents the external input into the innovation process.
4.2.3. Control variables
- The popular treatment of endogeneity is to find an appropriate instrumental variable (IV) for then endogenous one.
- Hu et al. (2005) show that proper industry variables can become effective instruments to correct for firm specific effects.
- These variables define the environment in which firms operate and yet are independent of a firm's specific characteristics.
- Therefore, the authors use the industry entry rate as the IV here, assuming that the dynamics or turbulence of the industry in which they belong significantly influences the innovative efforts of firms (i.e., how much they will invest in R&D) but plays an insignificant role in determining firm-level profitability, which is more likely a function of firm-level variables.
5. Estimation models
- The disturbances are assumed to be independent across individuals.
- The authors also treat the firm-effects as stochastic, which means that they are necessarily correlated with the lagged dependent variable .
- Besides, the authors check for possible violations of the underlying estimation assumptions in order to choose the most appropriate estimation method.
- In what follows, the authors therefore address and discuss common violations to the assumptions.
Test for violations of estimation assumptions: ( { ( (
- The authors apply the likelihood ratio test for heteroskedasticity to the panel data to determine the existence of strong heteroskedasticity in their data 9 .
- The Durbin-Wu-Hausman test indicates the endogeneity of innovation investment rate but not of R&D intensity 11 .
- Given the test results above, the authors apply the instrumental variable generalized method of moments (GMM) approach to estimate the static model (cluster by firms).
- The under-identification and overidentification test (Hansen J statistic) confirm the relevance and validity of their IV 12 .
- Therefore, the endogenous variable becomes pre-determined and is thus not correlated with the error term in equation ( 1).
7. Conclusions and policy implications
- In light of the above findings, to improve the country's international competitiveness, one important measure is to facilitate the interaction between PICs / YICs and the institutional context in which they operate.
- First, this interaction should be facilitated by selective actions of bridging intermediaries such as industry associations, Vietnam Chambers of Commerce and Industry (VCCI) aimed at facilitating knowledge flows between policy makers and innovators, and specifically promoting YICs' technological change by supporting investment in new machinery and capital equipment.
- Particularly, private firms which account for the majority of firm population and have constantly sustained a higher entrepreneurial performance should be the priority in the government's BDS (business development services) schemes.
- Third, in consideration of the results outlining the key role of technical employees, the creation of a solid repository of human resources and the hiring of qualified personnel should be promoted.
- Regrettably, most innovation policies try to promote the opposite; that is, fostering the formalization of in-house innovative activities through R&D expenditures when the lack of highly skilled personnel can be a deterrent to undertake R&D in SMEs.
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...The main reasons for such a “liability of newness” are the problems of setting an organizational structure and getting the new unit to work efficiently enough to keep pace with their competitors (Fritsch et al., 2006; Rosenbusch et al., 2011)....
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...…supporting the formation of innovative firms with the expectation of gaining from their breakthrough innovations (Klepper, 1996; Veugelers, 2008; Rosenbusch et al., 2011), developing countries generally focus on policies aimed at improving their institutional infrastructure and financial system…...
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...“liability of newness” are the problems of setting an organizational structure and getting the new unit to work efficiently enough to keep pace with their competitors (Fritsch et al., 2006; Rosenbusch et al., 2011)....
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...Introduction Whereas advanced countries call for policies supporting the formation of innovative firms with the expectation of gaining from their breakthrough innovations (Klepper, 1996; Veugelers, 2008; Rosenbusch et al., 2011), developing countries generally focus on policies aimed at...
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