Innovation, Firm Size and Ownership: A Study of Firm Transition in India

Numerous research studies emphasized the importance of innovation in competitiveness and economic growth. Using a sample of manufacturing-focused firms in India incorporated between the years 2004–2011 and following them for a period of five years post-incubation, we study the effect of innovation on the size transition of firms (i.e., the transition of firms from one size to another). We define the size of a firm by its annual sales turnover. The empirical analysis indicates that the impact of innovation on firm transition is conditional upon the firm size and the ownership structure of firms. The effect of innovation on firm transition varies with firm size. Further, the firms affiliated to a business group have a positive relationship indicating higher probability of transition. The novelty of this paper lies in a suggested conceptual framework based on the linkage between innovation activities and competitiveness signifying the structured approach towards firm transition. This study has significant implications for industrial policy in developing countries.