Good times, bad times: innovation and survival over the business cycle

In times of crisis, policy makers call upon entrepreneurship as a remedy to an economic downturn. Yet, at these times new firms face intensified selection and survival hinges on heterogeneous capabilities. We examine how the founding innovative capabilities of new ventures created in the Netherlands in 2001-2006 affected their survival likelihood before, during and after the 2007-2008 global financial crisis. We estimate a piecewise exponential model linking survival times, from 2001 to 2015, to longitudinal innovation data from the Community Innovation Survey. New firms innovating within 2 years from their founding enjoy a long-term adaptive survival premium during and after the crisis. This premium and its duration over the stages of the crisis are contingent to the form of innovation: technological innovations entail a more effective and enduring premium, as compared with nontechnological innovations, which can be even detrimental for survival.