New Venture Innovation in Dynamic Markets

The important relationship between knowledge and innovation is well established in the literature. However, little is known about how new ventures’ acquisition, assimilation, transformation, and exploitation of knowledge (i.e., their absorptive capacity) affects innovation. We examine the role of the individual components of absorptive capacity on innovation on a sample of new firms in the Swedish telecom, IT, media, and entertainment sectors. Our results suggest that the direct effects of the components of absorptive capacity on innovation are more complex than previously anticipated or articulated in the literature. We also find that while the four components of absorptive capacity are important for explaining innovation in new ventures, acquiring new technological knowledge and employing mechanisms for exploiting new knowledge are of greatest importance.