Firm performance over innovation cycle: Evidence from a small European economy

Baláž, Vladimír; Jeck, Tomáš; Balog, Miroslav Article Firm performance over innovation cycle: Evidence from a small European economy Journal of Innovation and Entrepreneurship Provided in Cooperation with: Springer Nature Suggested Citation: Baláž, Vladimír; Jeck, Tomáš; Balog, Miroslav (2023) : Firm performance over innovation cycle: Evidence from a small European economy, Journal of Innovation and Entrepreneurship, ISSN 2192-5372, Springer, Heidelberg, Vol. 12, Iss. 1, pp. 1-23, https://doi.org/10.1186/s13731-023-00298-9 This Version is available at: https://hdl.handle.net/10419/290261 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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Open Access This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article’s Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article’s Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http:// creat iveco mmons. org/ licen ses/ by/4. 0/. RESEARCH Balážetal. Journal of Innovation and Entrepreneurship (2023) 12:40 https://doi.org/10.1186/s13731-023-00298-9 Journal of Innovation and Entrepreneurship Firm performance overinnovation cycle: evidence fromasmall European economy Vladimír Baláž1 , Tomáš Jeck2* and Miroslav Balog1 Abstract Innovation is seen as a key capability for maintaining competitive advantage, creating value for customers, and capturing a larger share of the market. Yet, empirical evidence on the impact of innovation on firm performance is mixed. This research adds to the current debate on the relationship between innovation and the economic performance of firms. It brings new evidence from a small European economy (i.e., the Slovak Republic). We use a unique data set on 170 firms supported by the European Structural and Cohesion Funds (ESCF). Actual economic data reported in companies’ annual accounts, rather than self-reported information, is used to follow firm performance over a longer term horizon. The most significant finding is that the company’s innovation strategy was a key mediator of capability development and, ultimately, economic performance. The importance of specific innovation strategies varied over the innovation cycle. Simple process and organisational innovations were perceived to be important when assessing the immediate effects of European assistance. Investment in and cooperation on R&D&I became important when assessing firm performance over the longer term. The research expands the current body of literature on innovation capabilities and economic performance. It accentuates the need for a long-term perspective on innovation capabilities. To maintain a competitive advantage, a company’s innovation capabilities must be constantly aligned with the changing environment. Keywords: Innovation, Firm performance, Innovation cycle, Innovation strategies, Innovation moderators, Resource-based theory Introduction: innovation andfirm performance Innovativeness is a necessary condition for a firm’s competitive advantage. Yet, there is no universal agreement on the relation between innovativeness on one hand and firm performance on the other hand. Individual studies often produce conflicting results. Pathways between innovation capabilities and economic results may vary significantly among countries, industries, and firms. The key question is: what capabilities are considered essential for sustaining competitive advantage over the innovation cycle? This research contributes to the discourse on the effects of innovation capabilities on the economic and financial results of companies. The research focuses on a small European economy (i.e., the Slovak Republic). It employs a unique data set on 170 firms supported by the European Structural and Cohesion Funds (ESCF). The European assistance *Correspondence: [email protected] 1 Institute for Forecasting, Centre of Social and Psychological Sciences, Slovak Academy of Sciences, Šancová 56, 81364 Bratislava, Slovak Republic 2 Institute of Economic Research, Slovak Academy of Sciences, Šancová 56, 81364 Bratislava, Slovak Republic Page 2 of 23 Balážetal. Journal of Innovation and Entrepreneurship (2023) 12:40 was aimed at the enhancement of research, development, and innovation (R&D&I) capabilities in supported firms. The research adopts the resource-based view and combines qualitative and quantitative methods to establish how much the perceived effects of support and firms’ future priorities in R&D&I related to actual improvements in economic performance. Our research contains some novel elements. Firms’ evaluations of the effects of the ESCF, as well as their future development plans, are compared with actual economic data reported in companies’ annual accounts over a longer term horizon. The vector of explanatory variables combines mediating variables on innovation strategies with a high number of environmental and organisational moderators of economic performance. The effects of innovation strategies on performance were moderated by context-specific factors, such as organisational moderators (ownership, ownership, type, and size of assets) and environmental moderators (region of business) (Schilke etal., 2018). We found that innovation strategies and moderators are of about equal importance to the relationship between innovativeness and economic performance. The paper is organised as follows. The next chapter discusses theoretical the background of this research, particularly the resource-based views theories (Barney, 1991) and the concept of dynamic capabilities (Teece etal., 1997; Wang & Ahmed, 2007). Chapter3 presents a literature review on innovativeness and firm economic performance. A research gap is identified and hypotheses are stated. Chapter4 introduces the data and research methods. Data on the European resources supporting business R&D&I in Slovakia, as well as data from private databases of firms’ annual accounts, are presented. Furthermore, the same chapter introduces the authors’ survey on a sample of 170 supported firms. Chapter5 presents the key findings. Factor analysis and ordinary least squares regression (OLS) are applied to elicit key relations between firm resources and innovation capabilities and actual economic performance over the innovation cycle. Chapter6 summarises and discusses the major findings, states some important limitations, and suggests directions for further research. Theoretical background: firm resources, competitive advantage andeconomic performance The resource-based theory (RBT) suggests that a firm’s resources and capabilities are the primary drivers of its competitive advantage (Barney, 1991, p. 105–106). The original RBT assumed that sustained competitive advantage is derived from the specific bundle of heterogeneous and immobile resources (Barney, 1991, p. 105–106). Not all resources provide firms with competitive advantages. Sustained competitive advantage is enabled only by resources with specific attributes. The resource must be valuable, rare, imperfectly imitable and not easily substituted. A valuable resource is a unique and irreplaceable asset for decreasing costs and/or boosting revenues. A rare resource is a scare asset controlled only by a few competitors (Barney, 1991, p. 106). An imperfectly imitable resource is an asset (or bundle of relevant valuable and rare resources) that competing firms cannot acquire at acceptable costs (Knight & Cavusgil, 2004, p. 126, Kozlenkova etal., 2014, p. 12). Such tangible and intangible resources enable the efficient delivery of products to markets (Gök & Peker, 2017, p. 608). Heterogeneity of firms’ resources and capabilities is one of the cornerstones of the RBT (Helfat & Peteraf, 2003, p. 997). Individual firms may control different bundles of resources. A company with a special Page 3 of 23 Balážetal. Journal of Innovation and Entrepreneurship (2023) 12:40 combination of resources may carry out its operations more effectively than its rivals and, ultimately, gain a competitive edge in particular circumstances and locations. The complexities of resource trading between enterprises make sustained competitive advantage more likely. The focus on quasi-rents resulting from the control of distinctive resources (Peteraf & Barney, 2003, p. 317) was a certain drawback of original RBT. The RBT had long been criticized for ignoring intervening paths between resource possession and performance of a firm (D’Oria etal., 2021, p. 1411). The updated versions of the RBT (Barney, 1991) replaced attribute of substitutability with the criterion of ‘organisation’. The criterion refers to firm’s processes and structures that enable managing valuable, rare and imperfectly imitable resources conducive to sustained competitive advantage. Teece etal., (1997, p. 516) introduced concept of dynamic capabilities, i.e., the ‘firm’s ability to integrate, build, and reconfigure internal and external competencies to address rapidly changing environments.’ The reconfiguration of resources helps restore competitive advantage of a firm. Innovation refers to ‘transformation of ideas, information and knowledge to increased competitiveness and sustained competitive advantage’ (Tavassoli & Karlsson, 2016, p. 1484). Any company that wants to maintain its competitive advantage must use its innovative capabilities and reorganize its resource bundle to adapt to a volatile environment. Wang and Ahmed (2007, p. 38) define innovative capability as ‘a firm’s ability to develop new products and/or markets, through aligning strategic innovative orientation with innovative behaviours and processes’. Whether innovation capability is one of several dynamic capacities or whether the two concepts are synonymous is a matter of debate. After reviewing pertinent literature, Breznik and Hisrich (2014, p. 379) established substantial overlap between two notions. Both concepts include developing, integrating, changing, and reconfiguring business resources in innovating firms. Dynamic capabilities enhance a long-term company’s performance in an indirect way via capability development. Capability development is an outcome of a firm’s dynamic capabilities and is mediated via firm strategy over time. (Wang & Ahmed, 2007, p. 40). Innovation strategy is ‘an organization’s relative emphasis on different types of innovations and the associated pattern of resource allocation, in alignment with its strategy at the corporate and business unit levels’ Varadarajan, 2018, p. 143). Innovation strategy is a key component of a firm’s overall strategy, as it helps the firm create value for customers and capture a larger share of the market. We consider an innovation strategy to be a type of mediating capability (as it explains how and why innovation and performance are related). Innovation strategy is a key component of a firm’s overall strategy, as it helps the firm create value for customers and capture a larger share of the market. We consider an innovation strategy to be a type of mediating capability (as it explains how and why innovation and performance are related). Some context-specific factors may moderate effects of capabilities on firm performance. Schilke etal., (2018, p. 402), recognize two classes of moderators. Organisational moderators refer to a company’s size, structure, and culture, while environmental moderators refer to the industry sector, geographical location, and intensity of competition. There are several potential strategies for innovative firms to obtain a competitive advantage and improve economic performance. The impact of innovation upon Page 4 of 23 Balážetal. Journal of Innovation and Entrepreneurship (2023) 12:40 on economic and financial performance can be either direct (both positive and negative), indirect or moderated by the market environment or a firm’s properties (Shouyu, 2017, p. 650). Direct positive impacts result from innovation outcomes, such as new/ improved products and services, which better address customer needs. Direct negative impacts may refer to high costs that consume a large number of firms’ resources. Indirect impacts of innovation upon firm performance relate to transformational outcomes od dynamic capabilities (Wang & Ahmed, 2007), when process, organisational and marketing innovations improve firms’ economic performance (market shares, sales) and this, in turn, improves financial performance (profits) (Geroski etal., 1993, p. 198; Gunday etal., 2011). Process, marketing and organisational innovation also can improve firms’ market position, as far as they help cost-cutting and accessing higher numbers of customers. Organisational innovations aim at firms’ business practices, workplace organisation, or external relations. Certifications and accreditations are ranked the most common forms of organisational innovation. Organisational accomplishments, such as obtaining awards, certifications and accreditations, signal a firm’s position relative to its competitors as well as the progress that the firm has already made in resolving market, technological and organisational challenges (Hallen, 2008, p. 691). As for external relations, cooperation with the public research sector may provide firms with specific forms of competitive advantage, such as obtaining new knowledge, improving their reputation, and reducing the costs of R&D&I. Market intelligence and listening to customer needs enable identifying market opportunities. Intelligence suggests that a firm has to adopt new technologies and/or introduce marketing and organisational innovation so as to better address customer demands (Racela, 2014, p. 20). Literature review We review 14 studies performed in the period of 2010–2020 in developed and developing countries (Table1) and also quote results from several meta-analyses (Jamai etal., 2021; Rosenbusch etal., 2011; Rubera & Kirca, 2012; Shouyu, 2017). The review aims at (1) establishing a body of findings on the relation between firm innovativeness and performance, and (2) identifying key mediators and moderators of firm performance. Innovation strategy—mediator ofcapability development andeconomic performance Most of the reviewed studies found a positive impact of innovation upon economic and financial performance. As for the innovation strategy type, product innovations seem to have direct positive impacts on firm performance (Ramadani etal., 2019). Direct impact on financial performance was established for the innovative products developed to meet the customers’ needs (Bigliardi, 2013). This is in agreement with literature reviews conducted by Rosenbusch etal. (2011) and Jamai etal. (2021). As for the indirect impacts of innovation on economic performance of firms, two reviewed studies reported a positive impact of marketing innovation (Lee etal., 2019; Vasconcelos & Oliveria, 2018). Yet, there is unambiguous evidence on the beneficial effects of capability development and impact of organisational innovations on firm performance. Two reviewed studies reported beneficial effects of organisational innovation upon firm performance (Jiménez-Jiménez & Sanz-Valle, 2011; Lee etal., 2019), but one study (Atalay etal., 2013) found no such impact. Page 5 of 23 Balážetal. Journal of Innovation and Entrepreneurship (2023) 12:40 Table 1 Summary of research studies on impact of innovation on firm performance Study Country Sample size Time period Controls Performance indicators Estimation method Key findings Artz et al. (2010) USA 272 R&D spenders 1986–2004 Firm size, industry Growth in sales 3SLS Negative relationship between patents and growth in ROA and sales Jiménez-Jiménez and Sanz-Valle (2011)Spain 451 firms n.a Firm size, age, sector, environmental turbulence SSA: evolution of firm performance SEM Organisational learning and innovation contribute to business performance Gunday et al. (2011)Turkey 184 manufacturing firms 2006–2007 n.a SSA: evolution of sales, profits, ROA, ROS SEM Financial performance is an output of innovation, production and market performance Atalay et al. (2013)Turkey 113 automotive suppliers 2011 n.a SSA: performance relative to that of relevant competitors FA, HR Positive impact of product and process innovation, but not of organisational and marketing innovation Bigliardi (2013) Italy 98 food industry SMEs n.a Firm size SSA: performance relative to that of relevant competitors OLS Financial performance enhanced by product innovation, but not the technology adopted VanderPal (2015) USA 272 R&D spenders 1980–2013 n.a Revenue, equity, ROA, ROE Panel regression Positive relationship between R&D expenses and equity, revenue and ROA Tavassoli and Karlsson (2016)Sweden 4201 firms, CIS 2002–2012 Firm size, human and physical capital, industry Labour productivity (value added per employee) OLS, GLS, HTRE, FD Firms with a complex innovation strategy are more productive than those with simple or no innovation strategies Bistrova et al. (2017) CEE countries 2672 firms, Amadeo database 2005–2013 Intangibles in % of total assets ROE, gross margin, profit margin OLS, PR Lower shares of intangibles are associated with higher capital profitability Vasconceles and Oliveria (2018)Brazil 55 SMEs in foodservice 2015–2016 Firm age and size Revenue OLS, QR Marketing innovations improve firm performance Page 6 of 23 Balážetal. Journal of Innovation and Entrepreneurship (2023) 12:40 Table 1 (continued) Study Country Sample size Time period Controls Performance indicators Estimation method Key findings Rajapathirana and Hui (2018)Sri Lanka 379 insurance industry managers 2016 n.a SSA: investments, sales and profits SEM Innovation performance has a positive impact on financial performance Ramadani et al. (2019) 16 CEE and SEE countries 2109 SMEs, BEEPS 2013–2014 Age, ownership, industry, human capital, R&D Labour productivity CDM Product innovation, firm size, total labour cost, and capital have a positive impact, while age has a negative impact on firm performance Canh et al. (2019) Vietnam 9814 firms, VTCS 2011–2013 Assets, debt ROA Panel regression Process and product innovations increase the market share, but not the return on total assets Lee et al. (2019) Korea 856 firms in KIS 2014 n.a SSA: estimate of innovation-related turnover SEM Marketing innovation improves the performance of high-tech firms, while organisational innovation does so for low-tech firms Kijkasiwat and Phuensane (2020)29 EE and CA countries 12,890 SMEs, BEEPS 2013–2014 Firm size, age, sector Sales, fixed assets SEM Firm size and financial capital both moderate and mediate the impact of innovation on firm performance 3SLS three-stage least squares, CDM Crepon–Duguet–Mairesse model (Cobb–Douglas), FA factor analysis, FD first difference, GLS generalised least squares, HR hierarchical regression, HTRE Hausman–Taylor estimator, OLS ordinary least squares, PR polynomial regression, QR quantile regression, SEM structural equation modelling, ROA return on assets, ROE return on equity, ROS return on sales, SSA subjective self-assessment, CA Central Asia, CEE Central and Eastern Europe, EE Eastern Europe, SEE Southeastern Europe, BEEPS Business Environment Enterprise Performance Surveys (World Bank), CIS EU’s Community Innovation Survey, KIS Korean Innovation Survey, VTCS Vietnam Technology and Competitiveness Survey (The General Statistics Office of Vietnam) Page 7 of 23 Balážetal. Journal of Innovation and Entrepreneurship (2023) 12:40 Organisational moderators Firm size (usually measured via employment or assets) is the most common moderating variable. Rubera and Kirca (2012, p. 133) argue that the main advantages of large firms in comparison with smaller ones include a higher stock of resources, preferential access to distribution channels, economies of scale, and reputation. Large firms also can deploy higher human and financial resources for research than those of small ones (Shefer & Frenkel, 2005). These advantages make the introduction of innovation less costly and risky for larger firms. Smaller firms, on the other hand, may be more flexible in changing their assortment of products. Most authors have found a positive relation between firm size and performance (Tavassoli & Karlsson, 2016, p. 643; Jiménez-Jiménez & Sanz- Valle, 2011, p. 414; Vasconcelos & Oliveria, 2018, p. 148; Ramadani etal., 2019, p. 277), but Kijkasiwat and Phuensane (2020, p. 9) reported a negative relation. The relation between a firm’s age and its innovation and economic performance is subject to debate. Mature and large firms are better fitted to take substantial risks with a view to long-term gains than small ones. Age may help firms to accumulate market knowledge and develop organisational routines conducive to efficient execution of business. Younger firms, on the other hand, may benefit from a lack of inflexible organisational routines and gain more from the organisational learning process. Empirical evidence has brought mixed results. A meta-analysis by Rosenbusch etal., (2011, p. 452) and studies by Vasconcelos & Oliveria, 2018, p. 148) and Ramadani etal., (2019, p. 277) established a negative relation between innovative firms’ age and performance, while Jiménez-Jiménez and Sanz-Valle (2011, p. 415) found a positive one. Legal form and ownership type are other important moderators of firm performance. Joint stock companies tend to account for more sophisticated organisational structures and managerial techniques than those of simple LTD-type firms. As for ownership, foreign or international owners usually are able to tap a considerably higher stock of knowledge and financial resources than those available in domestic markets (Bena etal., 2017). Simple modes of internationalisation, such as outsourcing and exporting, are associated with product innovation, while ownership changes via foreign direct investment result in the emergence of sophisticated forms of innovation, such as patenting and research & development (R&D) (Boermans & Roelfsema, 2015; Ramadani etal., 2019, p. 278). Environmental moderators Findings on the effects of the industry or sector of business upon innovativeness and, consequently, firm performance vary considerably. For example, Artz etal., (2010, p. 735) established positive impacts of product innovations and patents upon sales growth in the paper industry, albeit negative ones in other industries. Jiménez-Jiménez and Sanz-Valle (2011, p. 414) and Ramadani etal., (2019, p. 277) found a positive relationship between innovation and performance in manufacturing industries, while Tavassoli and Karlsson (2016, p. 643) found a negative one. Conflicting findings may result from the combined influence of individual moderators and mediators. Specific industries account not only for different innovation strategies and technology intensities, but also for diverse modes of industrial organisation. Material and energy-intensive industries focused on mass production, such as suppliers for large car-makers, value cost-cutting process innovation (e.g., the introduction of new Page 8 of 23 Balážetal. Journal of Innovation and Entrepreneurship (2023) 12:40 technologies). Marketing innovation, on the other hand, may be of lower importance to such firms, as they sell their products directly to top-tier manufacturers (Atalay etal., 2013, p. 233). Variations in firm value, revenue and costs also may originate in regional factor markets (Audretsch etal., 2014, p. 745). It is easier to tap a skilled labour force and generate higher value in regions with a mature business environment than in underdeveloped regions. Firms operating in poorer regions, on the other hand, may outperform their competitors with lower production costs. Data sources andmethods Recent reviews of the RBT suggested that firm growth is weakly correlated to profitability and that while valuable resources have a positive influence on growth, the inimitable resources have a negative one (Nason & Wiklund, 2018, p. 52). The literature review indicated that there is no straightforward link between R&D&I and improved economic performance. Markets do not automatically select between innovative and efficient firms on one hand and non-innovative and less efficient firms on the other hand (Audretsch etal., 2014, p. 744). Contradictory findings on the impacts of innovativeness on firm performance may refer not only to diverse theoretical approaches but also to differences in research methods and the choice of dependent and explanatory variables. The measure of performance is not neutral to the choice of dependent variable. Innovativeness may have a higher impact on a firm’s market position (measured via its revenue stream) than on its financial position (measured via profits) (Rubera & Kirca, 2012). Moreover, specific innovation types may have quite different impacts on the same performance variable. Product innovation, for example, tends to have a positive effect on growth in employment, but process innovation may generate a displacement effect on the labour stock (Audretsch etal., 2014, p. 747). The reviewed studies relied on two types of data source. About half of the studies benefitted from primary data sources (author surveys), while the other half used secondary data sources such as standard large-scale surveys by national and international bodies. The author surveys enabled constructing their own research concepts and hypotheses (e.g., on the perceived impact of innovation capabilities and strategies upon a firm’s economic performance) and testing these via factor analysis (FA) and structural equation modelling (SEM) techniques (Atalay etal., 2013; Gunday etal., 2011; Jiménez-Jiménez & Sanz-Valle, 2011; Rajapathirana & Hui, 2018). These studies, however, sometimes accounted for limited access to actual economic data and had to rely on firms’ selfreported assessment. Some authors (Dawes, 1999) claim that objective and subjective (self-reported) indicators of firm performance are well-correlated. This study found limited evidence of these claims. The correlation coefficient for increased revenue via product certifications/accreditations and an actual increase in sales (0.273**) was statistically significant at the 0.05 level, albeit low (Appendix, Table7). Studies performed on secondary data (Canh etal., 2019; Kijkasiwat & Phuensane, 2020; Lee etal., 2019; Ramadani etal., 2019; Tavassoli & Karlsson, 2016) benefitted from large samples and sometimes also economic and financial data. These studies worked with pre-set questionnaires and combined SEM with regression techniques. The samples typically have large variations in firms’ age, employment, and performance indicators. No reviewed study included variables on the regional location, technology intensity, and legal and ownership types of Page 15 of 23 Balážetal. Journal of Innovation and Entrepreneurship (2023) 12:40 innovations’) covered variables on networking and process and product innovation. Factor 2.3 (‘Revenue and costs’) referred to additional income derived from new markets and certifications on one hand and cost cutting on the other hand. Factor 2.4 (‘Professional capabilities’) included only one variable on employees’ competences. Finally, four factors were established from 10 original variables in Set 3. Factor 3.1 (‘R&D and professional capacities’) included items related to R&D&I capacities and improvements in professional capabilities of employees. Factor 3.2 (‘Market opportunities’) referred to investment in marketing and a quest for new market opportunities. Factor 3.3 (‘IPR and international networks’) embodied firms’ efforts aimed at securing IPR and tapping knowledge provided by foreign partners. Factor 3.4 (‘New products and services’) contained only one variable on the development of new market-oriented products and services. Set 1: Kaiser–Meyer–Olkin measure of sampling adequacy: 0.869. Bartlett’s test of sphericity: approx. chi-square: 518.631; df: 28.000; sig.: 0.000. Set 2: Kaiser–Meyer– Olkin measure of sampling adequacy: 0.687. Bartlett’s test of sphericity: approx. chisquare: 181.597; df: 36.000; sig.: 0.000. Set 3: Kaiser–Meyer–Olkin measure of sampling adequacy: 0.880. Bartlett’s test of sphericity: approx. chi-square: 1101.089; df: 45.000; sig.: 0.000. Regression analysis The OLS regression examines what mediators (factor scores for innovation strategies) and moderating variables are associated with improvement in four economic indicators. The dependent variables are expressed as changes in assets, equity, sales, and value added in the period of 2016–2019 in comparison with 2013–2014 (Table4). The standardised beta coefficients provide for the comparability of effect sizes across variables. No multicollinearity was detected. All variance inflation factors were lower than 1.4. Initial internal resources, innovation capabilities, andmarket environment The only significant mediator was Factor 1.3 on cooperation and competition. It became negative for an increase in value added. The negative sign points to problems with strong competition and a lack of interest from foreign firms in cooperation. The region of business became significant for an increase in assets and equity. The negative sign indicates that initial innovation capabilities contributed to an increase in assets and equity less in the eastern part of Slovakia than in the western part. This is unsurprising when considering the vast east–west regional disparities in Slovakia. An increase in sales was negatively associated with the legal form and the share of intangible assets out of total assets. This indicates that simple LTD-type firms were able to generate higher increases in sales than those of joint stock companies. Most firms in the sample were manufacturers (78.2% of the total sample) and accounted for low shares of intangibles (mostly software) out of total assets. These firms reported a higher increase in sales in their annual accounts than did firms with higher shares of intangibles. Highest benefits ofthesupport Improvements in competitiveness via innovation and cooperation with domestic partners (Factor 2.2) and increased capabilities of employees (Factor 2.4) were ranked the Page 16 of 23 Balážetal. Journal of Innovation and Entrepreneurship (2023) 12:40 Table 4 Regressions Significance levels over 0.1 in bold. Age in years by 2014 (median age 17.0years); Legal form: 1: LTD (70.6%), 2: PLC (29.4%); Ownership: 1: domestic (85.3%), 2: foreign (14.7%); Region (NUTS 2 level): 1: Bratislava (21.2%), 2: Western Slovakia (24.1%), 3: Central Slovakia (27.6%), 4: Eastern Slovakia (27.1%); Sector of business: industry: 0 (78.2%), services: 1 (21.8%); Technology intensity: 1: low (42.9%), 2: medium (45.9%), 3: high (11.2%); Intangible assets: shares of intangible assets out of total assets (%) Dependent: Assets Equity Sales Value added Beta Sig Beta Sig Beta Sig Beta Sig Set 1 Initial innovation capabilities, internal resources, and market environment Constant 0.002 0.001 0.137 0.015 Factor 1.1 0.097 0.255 0.117 0.165 0.053 0.526 0.128 0.133 Factor 1.2 0.020 0.808 0.124 0.128 − 0.020 0.809 0.027 0.742 Factor 1.3 − 0.035 0.657 − 0.042 0.594 − 0.112 0.156 − 0.152 0.057 Factor 1.4 0.043 0.600 − 0.064 0.430 − 0.016 0.845 − 0.010 0.904 Age 0.002 0.980 − 0.087 0.317 0.044 0.607 − 0.040 0.647 Legal form 0.061 0.486 − 0.032 0.717 − 0.163 0.062 − 0.061 0.488 Ownership 0.127 0.121 0.031 0.701 − 0.107 0.189 − 0.047 0.564 Region − 0.156 0.050 − 0.143 0.072 0.075 0.343 − 0.031 0.698 Sector 0.005 0.956 − 0.082 0.325 0.071 0.395 0.084 0.318 Technology − 0.095 0.284 − 0.095 0.284 − 0.106 0.228 − 0.054 0.547 Intangible assets − 0.105 0.186 − 0.037 0.641 − 0.145 0.067 − 0.099 0.215 Ln assets − 0.037 0.714 − 0.083 0.407 0.157 0.116 − 0.010 0.918 R2 0.066 0.079 0.083 0.062 Set 2 Highest benefits of the support Constant 0.015 0.004 0.454 0.110 Factor 2.1 − 0.012 0.899 0.031 0.745 − 0.123 0.182 − 0.045 0.637 Factor 2.2 0.013 0.868 − 0.002 0.978 0.009 0.909 0.061 0.432 Factor 2.3 0.215 0.009 0.117 0.158 0.221 0.006 0.194 0.020 Factor 2.4 0.002 0.976 0.114 0.174 0.119 0.140 0.093 0.264 Age 0.009 0.916 − 0.105 0.223 0.026 0.756 − 0.060 0.490 Legal form 0.062 0.469 − 0.058 0.500 − 0.166 0.049 − 0.076 0.383 Ownership 0.141 0.092 0.028 0.743 − 0.074 0.370 − 0.030 0.725 Region − 0.133 0.094 − 0.120 0.137 0.125 0.110 0.009 0.915 Sector 0.076 0.401 − 0.058 0.525 0.133 0.132 0.142 0.122 Technology − 0.040 0.630 − 0.055 0.513 − 0.061 0.452 0.007 0.929 Intangible assets − 0.075 0.359 − 0.037 0.656 − 0.084 0.297 − 0.056 0.496 Ln assets − 0.020 0.834 − 0.051 0.602 0.178 0.061 0.028 0.777 R2 0.098 0.076 0.135 0.076 Set 3 Future priorities Constant 0.005 0.003 0.222 0.064 Factor 3.1 0.156 0.062 0.070 0.410 0.155 0.064 0.103 0.235 Factor 3.2 0.132 0.087 0.127 0.108 0.012 0.872 0.055 0.493 Factor 3.3 − 0.111 0.166 0.021 0.795 − 0.147 0.068 − 0.067 0.416 Factor 3.4 0.063 0.412 − 0.091 0.247 − 0.013 0.867 − 0.025 0.759 Age − 0.031 0.712 − 0.111 0.196 0.002 0.983 − 0.081 0.354 Legal form 0.061 0.468 − 0.054 0.530 − 0.166 0.050 − 0.081 0.357 Ownership 0.129 0.115 0.040 0.631 − 0.101 0.217 − 0.039 0.643 Region − 0.137 0.082 − 0.131 0.102 0.078 0.321 − 0.022 0.786 Sector 0.031 0.708 − 0.036 0.666 0.095 0.250 0.125 0.145 Technology − 0.082 0.330 − 0.065 0.451 − 0.118 0.160 − 0.022 0.802 Intangible assets − 0.117 0.132 − 0.052 0.511 − 0.139 0.075 − 0.096 0.232 Ln assets 0.000 0.999 − 0.049 0.615 0.192 0.048 0.039 0.698 R2 0.112 0.078 0.112 0.046 Page 17 of 23 Balážetal. Journal of Innovation and Entrepreneurship (2023) 12:40 most positively perceived benefits of European assistance. These factors, however, became insignificant for improvements in economic indicators (Table4). Factor 2.3 (‘Revenue and costs’) was significant and positive for an increase in assets, sales, and value added. Certifications and accreditations, as well as developing markets abroad, are efficient ways in which to obtain new customers and increase the revenue stream. Cost-cutting process innovation helped to improve the financial balance and increases in value added. Similar to Set 1 on initial capabilities, the region of business became significant for an increase in assets (with a negative sign). This indicates that firms located in western parts of Slovakia derived higher benefits from European assistance than those located in the east. The ownership type was positive and significant for an increase in assets. Firms with foreign owners achieved a higher increase in assets than did those with domestic ones. Like in Set 1, the legal form was significant and negative for an increase in assets in Set 2. Firm size (measured via the log of assets) was significant and positive for growth in sales. The magnitudes of the respective beta coefficients for increase in assets, sales and value added to show that the mediators (factor 2.3) were rather more important than respective moderators (regions of business, ownership and legal form). Future priorities Future plans are always associated with a significant degree of uncertainty. Both internal resources and market developments may differ from expected ones. We were interested in how much firm future priorities translated to actual improvement in economic performance. The firms perceived investment in marketing and services and pursuing new market opportunities (Factor 3.2) and the development of new market-oriented products (Factor 3.4) to be the most important future priorities (Table2). Factor 3.4 became insignificant for all dependent variables, but Factor 3.2 was significant and positive in increases in sales. Factor 3.3 was statistically significant for an increase in sales, albeit with a negative sign. Costly investment in the registration of IPR and participation in international R&D&I networks may have depleted firm resources and impacted sales. Five items included in Factor 3.1 (‘R&D&I and professional capacities’) received only a medium–high positive evaluation by the survey participants. The factor, however, proved statistically significant and positive for increases in assets and sales. Interestingly, investment in R&D&I and professional capabilities (Factors 2.1 and 2.4) became insignificant when associated with the highest benefits of European assistance by the time of the survey (2015). Such investment, however, was significant when associated with future priorities and improvements in economic performance in the period of 2016–2019. It seems that firms reconsidered their intentions towards R&D and professional capabilities and increased their respective investment during the post-intervention period. The region of business again became significant and negative for an increase in assets. Like in Sets 1 and 2, the legal form became significant and negative for an increase in sales in Set 3. The share of intangibles out of total assets was significant and negative for growth in sales. The magnitudes of the respective beta coefficients indicate that the mediator (Factor 3.1) was about equally as important as the respective moderators (regions of Page 18 of 23 Balážetal. Journal of Innovation and Entrepreneurship (2023) 12:40 business, legal form, size, and structure of assets) for an increase in assets and sales and assets. Discussion, conclusions, anddirection forfurther research This study found that internal resources and capabilities, type of innovation strategy, as well as region of business and ownership were important determinants of the economic performance of innovative firms in Slovakia. Interestingly, the importance of specific mediators varied across stages of innovation development (H1 and H2 confirmed). It seems that the firms combined both innovation and R&D-oriented strategies in the period of 2016–2019. This conclusion resonates with that by Tavassoli and Karlsson (2016) on the benefits of multiple innovation strategies. Simple process and organisational innovations were perceived to be important when assessing the immediate effects of European assistance. These strategies worked efficiently, as they improved not only the revenue stream (sales), but also the value added and the total value of assets (Table4). These findings are in agreement with results by Jiménez-Jiménez and Sanz-Valle (2011), Bigliardi (2013) and Vasconcelos and Oliveria (2018) on the importance of organisational and marketing innovation. Investments in and cooperation on R&D&I were important when assessing firm performance over the long term. Such investments likely came to be more costly than process and organisational innovations, as they improved performance in assets and sales but not in value added. Application of multiple innovation strategies over the innovation cycle indicates that firms were able to reconfigure and integrate their capabilities so as to address rapidly changing environments and sustain competitive advantage (Teece etal., 1997; Wang & Ahmed, 2007). The magnitudes of the beta coefficients indicate that mediators (innovation strategies) were about equally important to performance as organisational and environmental moderators (region of business, legal form, ownership type, and firm size) (Schilke etal., 2018). Region of business and legal form proved to be the moderators with the most consistent effects on economic performance over different stages of firms’ innovation cycle. Firms in the western part of Slovakia clearly enjoyed location advantage and a much better business environment than did those in the east (H3.4 confirmed). As for the legal form, the LTD-type firms (accounting for 70.6% of the total sample) consistently outperformed joint stock companies in sales growth (H3.2 confirmed). We assume that LTD- type firms benefitted from more simple and flexible organisational structures. The size of a firm’s assets was positively related to sales growth (H3.8 confirmed). The conclusion agrees with findings by Tavassoli and Karlsson (2016), Jiménez-Jiménez and Sanz-Valle (2011), Vasconcelos and Olivera (2018) and Ramadani etal. (2019), but not with those by Kijkasiwat and Phuensane (2020). Shares of intangibles out of total assets were negatively correlated with sales growth (H3.7 confirmed). This agrees with results by Bistrova etal. (2017). All comparisons, however, must be considered with care, as they are obscured by the different measures of firm size and dependent variable. The ownership type mattered to firm performance (H3.3 confirmed). Firms owned by foreign capital accounted for only 14.7% of the total sample, but reported significantly higher growth in assets than did domestically owned companies. Technology intensity and the sector of business became insignificant for all economic indicators across Sets 1, 2 and 3 (H3.5 and H3.6 unconfirmed). This may have been caused by Page 19 of 23 Balážetal. Journal of Innovation and Entrepreneurship (2023) 12:40 the sample composition, with a dominance of manufacturing firms. Age was also insignificant for firms’ economic performance (H3.1 unconfirmed). The research findings resonate with propositions by resource-based theories. The RBT suggests that resources are valuable when they ‘enable a firm to conceive of or implement strategies that improve its efficiency or effectiveness’ (Barney, 1991, p. 106). Results of the regression analysis suggest that only the resources associated with the Factor 3.1 were significant for increases in sales over longer term. All these resources revolved around research, development, and innovation (R&D&I) and concerned R&D&I spending, cooperative arrangements, and professional capabilities. Financial means for research and innovation and modern technological equipment were considered the most scarce initial internal resources in the survey (Set 1). R&D&I activities are expensive and not easy to acquire by potential competitors at acceptable costs (Kozlenkova etal., 2014). By the time of the survey (2015), R&D&I- related benefits had only a medium–high ranking in the evaluation of perceived benefits of European support (Set 2) and intended future priorities (Set 3). These benefits, however, proved essential for increases in sales and assets in the period 2016–2019 compared to 2013–2014. The result indicates that the firms considered multiple innovation strategies (hypothesis 1) and that the importance of specific strategies varied over time (Hypothesis 2). The deployment of the R&D&I resources was more intense than the survey participants anticipated. The firms were able to dynamically reconfigure their innovative capabilities (Breznik & Hisrich, 2014) so as to sustain competitive advantage over the long term (Peteraf & Barney, 2003, p. 314). Recent reviews of the RBT suggested that while valuable resources have a positive influence on growth, inimitable resources have a negative one (Nason & Wiklund, 2018, p. 52). Our research supports these conclusions. Intangible assets are more difficult to imitate than tangible ones. The intangible assets, however, were negatively associated with growth in sales by the surveyed firms (Table4). This research has some notable limitations. The strength of the conclusions is limited by the sample size and composition. We do not claim that the sample is representative of all innovative companies in Slovakia. We were unable to obtain data on the R&D resources and performance of the surveyed firms. We also lacked data on some unobservable but important business environment variables, such as the availability of human resources, the quality of management, prices of inputs and outputs, and/or changes in customers’ demand. The paper’s limitations suggest directions for further research. The literature review pointed to substantial diversity in the mediating and moderating variables. Our research indicated that companies may apply different strategies across their innovation cycle. Follow-up research may explore how these strategies change over a longer term horizon. There is an opportunity to combine companies’ economic data from the FinStat database with those provided by the national patent office. This approach may help in identifying whether firms applying for patents, trademarks, and industrial designs account for improved economic results in comparison with companies with no IPR activities. Page 20 of 23 Balážetal. Journal of Innovation and Entrepreneurship (2023) 12:40 Appendix See Tables5, 6, and 7. Table 5 Descriptive statistics for 2014, €m Source: authors’ computations based on firms’ financial statements. N = 170 Mean Median SD Min Max Assets 8.82 2.53 26.32 0.02 283.91 Equity 4.56 0.68 17.51 − 0.80 191.29 Sales 7.65 2.14 22.15 0.01 236.88 Value added 2.60 0.79 7.31 − 0.42 64.81 Table 6 Pearson correlation matrix for questionnaire/Set 2 (the highest benefits) *Significant at the 0.05 level; **significant at the 0.01 level 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.1 New/innovative products/services and improved our competitiveness 1 2.2 We have cut costs via energy and material savings 0.112 1 2.3 The project enabled higher investment in applied research in the future 0.165*− 0.211** 1 2.4 We registered IPR and derived income from these 0.055 − 0.233** 0.420** 1 2.5 We have modern technological equipment now 0.186*0.298** − 0.201** − 0.263** 1 2.6 We improved cooperation with partners from public and private sectors 0.265** − 0.070 0.109 0.046 0.110 1 2.7 We are developing cooperation more than before with partners from abroad 0.349** 0.103 0.198** − 0.031 0.146 0.261** 1 2.8 Certifications and/or accreditations of our products/services increased our revenue 0.210** 0.122 0.138 0.049 0.089 0.085 0.305** 1 2.9 Professional capabilities of our employees increased 0.214** − 0.090 0.211** 0.039 − 0.033 0.209** 0.267** 0.150 Page 21 of 23 Balážetal. Journal of Innovation and Entrepreneurship (2023) 12:40 Abbreviations ESCF European Structural and Cohesion Funds R&D&I Research, development and innovation OLS Least squares regression RBT Resource-based theory LTD Limited SEM Structural equation modelling IPR Intellectual property rights FA Factor analysis FD First difference GLS Generalised least squares 3SLS Three-stage least squares CDM Crepon–Duguet–Mairesse model HR Hierarchical regression HTRE Hausman–Taylor estimator PR Polynomial regression QR Quantile regression ROA Return on assets ROE Return on equity ROS Return on sales SSA Subjective self-assessment CA Central Asia CEE Central and Eastern Europe EE Eastern Europe SEE Southeastern Europe BEEPS Business Environment Enterprise Performance Surveys (World Bank) CIS EU’s Community Innovation Survey KIS Korean Innovation Survey VTCS Vietnam Technology and Competitiveness Survey NUTS Nomenclature of Territorial Units for Statistics LAU Local administration unit BA Bratislava region Table 7 Correlation matrix for subjective and actual indicators of economic performance Actual economic indicators in italics **Correlation is significant at the 0.01 level (two-tailed); *correlation is significant at the 0.05 level (two-tailed) Improved competitiveness via product innovation Cost cutting via process innovation Increased revenue via product certifications and accreditations Increase in assets Increase in equity Increase in sales Improved competitiveness via product innovation 1 Cost cutting via process innovation 0.112 1 Increased revenue via product certifications and accreditations 0.210** 0.122 1 Increase in assets 0.082 0.024 0.244** 1 Increase in equity 0.027 0.060 0.196*0.462** 1 Increase in sales 0.046 0.097 0.273** 0.424** 0.207** 1 Increase in value added 0.124 0.079 0.221** 0.525** 0.306** 0.663** Page 22 of 23 Balážetal. Journal of Innovation and Entrepreneurship (2023) 12:40 TT Trnava region NR Nitra region ZA Žilina region NACE Statistical classification of economic activities DG REGIO Directorate-General for Regional and Urban Policy NSRF The National Strategic Reference Framework PLC Public Limited Company R&D Research and development Author contributions VB was responsible for conceptualisation, methodology, supervision, analysis of survey data, and writing—original draft preparation. TJ: (corresponding author): managed data preparation, cleaning and curation, geographical analysis, and research validation. MB was responsible for project administration, funding acquisition, investigation and survey implementation. All authors read and approved the final manuscript. Funding This research was supported by Slovak VEGA Grant No. 2/0001/22 and VEGA Grant No. 2/0042/23. 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