Industrial innovation and firm performance: A re-conceptualization and exploratory structural equation analysis

Successful new products are rsrrntidi to the financial viability of many firms, with more than half of mast firms' sales resulting from products introduced in the past decade. But despite much research attempting to relate industrial innovation and firm performance, a cohesive themy has yet to emerge. We use structural equation models to assess the simultaneous impact of market structure, firm size and diversification on industrial innovation and firm performance. Wc measure innovative output hy both the numher and the nature of resulting new products. In s siimple of forty firms in the industrial chemicals industty, we found that (a) innovvtivcness results in better firm performance; (b) intermediate lcvcls of market concentration result in more innovativeness and better performance than mare extreme Iwris; (c) smaller firms are morc innovative and perform better than larger firms, and (d) less diversified firms perform better than highly diversified firms.