Innovation Driven Enterprise, Sustainable Business and Firm Financial Performance
DOI:
https://doi.org/10.12695/ajtm.2018.11.1.2Keywords:
Innovation, sustainable business, financial performance, R&D expenseAbstract
Abstract Innovation should be followed by profitable commercialization to have a sustainable business. Teece (1986) identified that it is often not the innovator who introduces a new process, product or service who profits the most from an innovation, but instead suppliers, cooperators, customers and competitors. In emerging markets, especially in Indonesia, it is challenging to do innovation due to the lack of infrastructure. This study explores innovation-driven enterprise relationships with firm financial performance measures by firm profitability. To identify the innovation-driven enterprise financing capabilities and innovation, the study used company age, R&D expense, sales, sales growth, debt ratio and retained earnings as independent variables. Firm profitability performance was measured by return on assets (ROA). R&D expenses of innovation-driven enterprises had a positive correlation with firm financial performance. Sales and retained earnings had a positive correlation with R&D expense. However, company age, debt ratio and sales growth had a weak negative correlation with corporate innovation activities. Retained earnings had a positive correlation and was the biggest determinant of firm profitability. It was shown that innovation-driven enterprises in Indonesia are financing their innovation with retained earnings (internal financing) and not debt (external financing).
Keywords: Innovation, sustainable business, financial performance, R&D expense, internal financing
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References
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Afuah, A. & Tucci, C.L. (2001). Internet business models and strategies: Text and cases 1st Edâ€. New York: Mcgraw-Hill Higher Education.
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Acharya, V. & Xu, Z. (2017) Financial Dependence and Innovation: The Case of Public versus Private Firms. Journal of Financial Economics, 124, 223-243
Asimakopoulos, I., Samitas, A., & Papadogonas, T. (2009). Firmâ€specific and economy wide determinants of firm profitability: Greek evidence using panel data", Managerial Finance, 35(11), 930-939, Doi: 10.1108/03074350910993818
Bayus, B.L, Erickson, G., Jacobson, R., (2003). The Financial Rewards of New Product Introductions in the Personal Computer Industry. Management Science, 499(2), 197-210.
Bhaduri, S. N. (2002). Determinants of Corporate Borrowing: Some Evidence from the Indian Corporate Structure. Journal of Economics and Finance 26 (2), 200-215.
Boons, F.A.A., (2009). Creating Ecological Value. In: An Evolutionary Approach to Business Strategies and the Natural Environment. Elgar, Cheltenham.
Boons, F. & Lüdeke-Freund, F. (2013): Business models for sustainable innovation: State-of-the-artand steps towards a research agenda. Journal of Cleaner Production, 45, 9-19.
Bowman, C. & Ambrosini, V. (2000). Value creation versus value capture: towards a coherent definition of value in strategy. British Journal of Management, 11, 1-15.
Chesbrough, H. (2010), Business model innovation: opportunities and barriers. Long Range Planning, 43(2/3) Sp. Iss. SI, 354–363.
Clinton, L., & Whisnant, R. (2014). Model Behavior: 20 Business Model Innovations for Sustainability. Sustain Ability, February 2014.
Donaldson, T., & Preston, L. (1995). The Stakeholder Theory of the Corporation: Concepts, evidence and Implications. Academy of Management Review, 20(1), 65-91.
Echevarria, D. P. (1997). Capital Investment and the Profitability of Fortune 500 Industrials: 1971-1990. Studies in Economics and Finance, 18(1), 3-35.
Ernst, D. (2002a). Global Production Networks and the Changing Geography of Innovation Systems. Implications for Developing Countries. Economics of Innovation and New Technologies, XI (6), 497–523.
Froot K., Scharfstein, D., & Stein, J. (1993). Risk Management: Coordinating Corporate Investment and Financing Policies. The Journal of Finance ,48(5),1629-1658.
Geels, F., Elzen, B., & Green, K. (2004). General Introduction: System innovation and Transitions to sustainability.
Gujarati D. (2004). Basic Econometrics, McGraw-Hill, New York, 2004.
Hansen, E.G., Große-Dunker, F., Reichwald, R., (2009). Sustainability innovation Cubee a framework to evaluate sustainability-oriented innovations. International Journal of Innovation Management 13, 683-713.
Hockerts, K. & Wüstenhagen, R. (2010). Greening Goliaths versus emerging Davids – Theorizing about the role of incumbents and new entrants in sustainable entrepreneurship. Journal of Business Venturing, 25(5), 481–492.
Hull, C. L., & Rothenberg, S.(2008). Firm Performance: The Interactions of Corporate Social Performance with Innovation and Industry Differentiation. Strategic Management Journal, 29, 781-789.
Hsueh, L., & Ying, Y.T. (2004). Innovation and the Operational Performance of Newly Established Small and Medium Enterprises in Taiwan. Small Business Economics, 23(2), 99-113.
Korajczyk, R.A., & Levy, A. (2003). Capital Structure Choices: Macroeconomic Conditions and Financial Constraints. Journal of Financial Economics 68, 75-109.
Liu, T., & Chen, Y. (2010). Research and Development Investment Strategy and Market Performance. Social Behavior and Personality, 38(2), 227-236.
Lüdeke-Freund, F. (2013). Business Models for Sustainability Innovation – Conceptual Foundations and the Case of Solar Energy. [PhD Thesis]. Lüneburg: Leuphana University.
Lee, C. (2004). The Determinants of Innovation in the Malaysian Manufacturing Sector: An Econometric Analysis at the Firm Level. ASEAN Economic Bulletin 21(3), 319-329.
Lele, M. (2003). Monopoly Thinking Can Make Your R&D More Effective. Research Technology Management, 46(5), 34-42.
Mansfield, E. (1998). The Speed and Cost of Industrial Innovation in Japan and The United States: External vs. Internal Technology. Management Science 34(10), 1157-1168.
Markides, C.C., Charitou, C.D., (2004). Competing with dual business models: a contingency approach. Academy of Management Executive 18, 22-36.
Miller E., & Zimmermann,V. (2009). The importance of equity finance for R&D activity. Small Business Economics 33(3), 303-318.
Myers S.C. (2001). Capital Structure. Journal of Economic Perspectives, 15(2), 81-102
O'Brien, J. (2003). The Capital Structure Implications of Pursuing a Strategy of Innovation. Strategic Management Journal, 24(5), 415-431.
Osterwalder, A. (2004): The business model ontology: A proposition in a design science approach. [PhD Thesis]. Lausanne: Universite de Lausanne.
Osterwalder, A. & Pigneur, Y. (2010): Business model generation. A handbook for visionaries, game changers, and challengers. Hoboken, NJ: Wiley.
Pellegrino, G., & Savona, M., (2017). No money, no honey? Financial versus knowledge and demand Constraints on innovation. Research Policy, 46, 510–521.
Peterovic, O., Kittl, C., Teksten, R.D. (2001). Developing Business Models for eBusiness, International Conference on Electronic Commerce 2001, Vienna, October 31. – November 4.
Phaal, R., Farrukh, C. J. P., & Probert, D. R. (2004). Technology roadmapping: a planning framework for evolution and revolution. Technological Forecasting and Social Change, 71(1-2), 5-26.
Doi.:10.1016/S0040-
1625(03)00072-6.
Porter, M.E., & Kramer, M.R. (2011). Creating Shared Value. Harvard Business Review, 89(1/2), 62–77.
Rajan & Zingales. (1995). What do We Know About Capital Structure? Some Evidence from International Data. Journals of Finance 50(5), 1421-1460.
Roberts P. (1999). Product Innovation, Product-Market Competiton and Persistent Profitability in The U.S. Pharmaceutical Industry. Strategic Management Journal, 20, 655–670.
Shankar, R., Sourish A., & Baveja, A. (2009). Soft-system Knowledge Management Framework for New Product Development. Journal of Knowledge Management 13(1), 135-153.
Stamm, B. Von. (2003a). Innovation = Creativity and Commercialization. In Managing Innovation, Design and Creativity. Chichester: Wiley, pp. 19-38.
Short, S.W., Bocken, N.M.P., Rana, P., & Evans, S. (2012). Business ModelInnovation for Embedding Sustainability : A Practice-Based Approach IntroducingBusiness Model Archetypesâ€, in proceedings of the 10th Global Conference onSustainable Manufacturing (GCSM): Towards Implementing SustainableManufacturing, 31st October - 2nd November, Istanbul, Turkey.
Schaltegger, C.A. (2002). Budgetregeln und ihre Wirkung auf die öffentlichen Haushalte: Empirische Ergebnisse aus den US-Bundesstaaten und den Schweizer Kantonen, Schmollers Jahrbuch 122, 369-413.
Schaltegger, S., & Wagner, M., (2008). Types of sustainable entrepreneurship and the conditions for sustainability innovation. In: Wüstenhagen, R., Hamschmidt, J., Perspectives in Research on Corporate Sustainability. Edward Elgar, Cheltenham, pp. 27-48.
Sharma, S., & Starik, M. (2008). Sustainable Innovation and Entrepreneurship. (Eds.).New. Edward Elgar Publishing Limited. ISBN: 978 1 84720 037 2
Schaltegger, S. & Wagner, M. (2011). Sustainable entrepreneurship and sustainability innovation: categories and interactions, Business Strategy and the Environment, 20(4), 222–237.
Seoa, H., Chungb, Y., & Yoonc, H. (2017). R&D cooperation and unintended innovation performance: Role of appropriability regimes and sectoral characteristics. Technovation, 59, (forthcoming).
Sorensen, J. B., & Stuart, T.E. (2000). Aging, Obsolence, and Organizational Innovation. Administrative Science Quarterly, 45(1), 81-112.
Teece (1986). Profiting from innovation. Research Policy, 15(6), 285-305.
Teece (2010). Capturing value from knowledge assets: the new economy, markets for know-how, and intangible assets. Essays on Technology Management and Policy, 47-75
Titman, S., & Wessels, R. (1998). The Determinants of Capital Structure Choice. The Journal of Finance, 43(1), 1-19.
Tukker, A.; Emmert, S.; Charter, M.; Vezzoli, C.; Sto, E.; Andersen, M.; Geerken, T.; Tischner, U. & Lahlou,S. (2008). Fostering change to sustainable consumption and production: An evidence Based view, Journal of Cleaner Production, 16(11), 1218–1225.
Turban, E., D. King, J. Lee, M. Warkentin, & H.M. Chung. (2002). Electronic Commerce: A Managerial Perspective. New York: Prentice Hall, 2002.
Vincente-Lorente, J. D. (2001). Specificity and Opacity as Resources-Based Determinans of Capital Structure: Evidence for Spanish Manufacturing Firms. Strategic Management Journal, 22 (2).
Wüstenhagen, R., & Boehnke, J., (2008). Business models for sustainable energy. In: Tukker, A., Charter, M., Vezzoli, C., Stø, E., Andersen, M.M. (Eds.), Perspectives on Radical Changes to Sustainable Consumption and Production 1. System Innovation for Sustainability. Greenleaf, Sheffield, pp. 70-79.
Wolff, J.A., & Pett, T.L. (2006). Small-Firm Performance: Modeling the Role of Product and Process Improvements. Journal of Small Business Management 44(2), 268-284.
Zott, C., & Amit, R. (2010). Designing your future business model: An activity system perspective. Long Range Planning, 43, 216–226.
Afuah, A. & Tucci, C.L. (2001). Internet business models and strategies: Text and cases 1st Edâ€. New York: Mcgraw-Hill Higher Education.
Allee, V. (2011). Value Networks and the true nature of collaboration†Online Edi., ValueNet Works and Verna Allee Associates. available at: http://www.valuenetworksandcollaboration.com/ (accessed 25 March 2015).
Acharya, V. & Xu, Z. (2017) Financial Dependence and Innovation: The Case of Public versus Private Firms. Journal of Financial Economics, 124, 223-243
Asimakopoulos, I., Samitas, A., & Papadogonas, T. (2009). Firmâ€specific and economy wide determinants of firm profitability: Greek evidence using panel data", Managerial Finance, 35(11), 930-939, Doi: 10.1108/03074350910993818
Bayus, B.L, Erickson, G., Jacobson, R., (2003). The Financial Rewards of New Product Introductions in the Personal Computer Industry. Management Science, 499(2), 197-210.
Bhaduri, S. N. (2002). Determinants of Corporate Borrowing: Some Evidence from the Indian Corporate Structure. Journal of Economics and Finance 26 (2), 200-215.
Boons, F.A.A., (2009). Creating Ecological Value. In: An Evolutionary Approach to Business Strategies and the Natural Environment. Elgar, Cheltenham.
Boons, F. & Lüdeke-Freund, F. (2013): Business models for sustainable innovation: State-of-the-artand steps towards a research agenda. Journal of Cleaner Production, 45, 9-19.
Bowman, C. & Ambrosini, V. (2000). Value creation versus value capture: towards a coherent definition of value in strategy. British Journal of Management, 11, 1-15.
Chesbrough, H. (2010), Business model innovation: opportunities and barriers. Long Range Planning, 43(2/3) Sp. Iss. SI, 354–363.
Clinton, L., & Whisnant, R. (2014). Model Behavior: 20 Business Model Innovations for Sustainability. Sustain Ability, February 2014.
Donaldson, T., & Preston, L. (1995). The Stakeholder Theory of the Corporation: Concepts, evidence and Implications. Academy of Management Review, 20(1), 65-91.
Echevarria, D. P. (1997). Capital Investment and the Profitability of Fortune 500 Industrials: 1971-1990. Studies in Economics and Finance, 18(1), 3-35.
Ernst, D. (2002a). Global Production Networks and the Changing Geography of Innovation Systems. Implications for Developing Countries. Economics of Innovation and New Technologies, XI (6), 497–523.
Froot K., Scharfstein, D., & Stein, J. (1993). Risk Management: Coordinating Corporate Investment and Financing Policies. The Journal of Finance ,48(5),1629-1658.
Geels, F., Elzen, B., & Green, K. (2004). General Introduction: System innovation and Transitions to sustainability.
Gujarati D. (2004). Basic Econometrics, McGraw-Hill, New York, 2004.
Hansen, E.G., Große-Dunker, F., Reichwald, R., (2009). Sustainability innovation Cubee a framework to evaluate sustainability-oriented innovations. International Journal of Innovation Management 13, 683-713.
Hockerts, K. & Wüstenhagen, R. (2010). Greening Goliaths versus emerging Davids – Theorizing about the role of incumbents and new entrants in sustainable entrepreneurship. Journal of Business Venturing, 25(5), 481–492.
Hull, C. L., & Rothenberg, S.(2008). Firm Performance: The Interactions of Corporate Social Performance with Innovation and Industry Differentiation. Strategic Management Journal, 29, 781-789.
Hsueh, L., & Ying, Y.T. (2004). Innovation and the Operational Performance of Newly Established Small and Medium Enterprises in Taiwan. Small Business Economics, 23(2), 99-113.
Korajczyk, R.A., & Levy, A. (2003). Capital Structure Choices: Macroeconomic Conditions and Financial Constraints. Journal of Financial Economics 68, 75-109.
Liu, T., & Chen, Y. (2010). Research and Development Investment Strategy and Market Performance. Social Behavior and Personality, 38(2), 227-236.
Lüdeke-Freund, F. (2013). Business Models for Sustainability Innovation – Conceptual Foundations and the Case of Solar Energy. [PhD Thesis]. Lüneburg: Leuphana University.
Lee, C. (2004). The Determinants of Innovation in the Malaysian Manufacturing Sector: An Econometric Analysis at the Firm Level. ASEAN Economic Bulletin 21(3), 319-329.
Lele, M. (2003). Monopoly Thinking Can Make Your R&D More Effective. Research Technology Management, 46(5), 34-42.
Mansfield, E. (1998). The Speed and Cost of Industrial Innovation in Japan and The United States: External vs. Internal Technology. Management Science 34(10), 1157-1168.
Markides, C.C., Charitou, C.D., (2004). Competing with dual business models: a contingency approach. Academy of Management Executive 18, 22-36.
Miller E., & Zimmermann,V. (2009). The importance of equity finance for R&D activity. Small Business Economics 33(3), 303-318.
Myers S.C. (2001). Capital Structure. Journal of Economic Perspectives, 15(2), 81-102
O'Brien, J. (2003). The Capital Structure Implications of Pursuing a Strategy of Innovation. Strategic Management Journal, 24(5), 415-431.
Osterwalder, A. (2004): The business model ontology: A proposition in a design science approach. [PhD Thesis]. Lausanne: Universite de Lausanne.
Osterwalder, A. & Pigneur, Y. (2010): Business model generation. A handbook for visionaries, game changers, and challengers. Hoboken, NJ: Wiley.
Pellegrino, G., & Savona, M., (2017). No money, no honey? Financial versus knowledge and demand Constraints on innovation. Research Policy, 46, 510–521.
Peterovic, O., Kittl, C., Teksten, R.D. (2001). Developing Business Models for eBusiness, International Conference on Electronic Commerce 2001, Vienna, October 31. – November 4.
Phaal, R., Farrukh, C. J. P., & Probert, D. R. (2004). Technology roadmapping: a planning framework for evolution and revolution. Technological Forecasting and Social Change, 71(1-2), 5-26.
Doi.:10.1016/S0040-
1625(03)00072-6.
Porter, M.E., & Kramer, M.R. (2011). Creating Shared Value. Harvard Business Review, 89(1/2), 62–77.
Rajan & Zingales. (1995). What do We Know About Capital Structure? Some Evidence from International Data. Journals of Finance 50(5), 1421-1460.
Roberts P. (1999). Product Innovation, Product-Market Competiton and Persistent Profitability in The U.S. Pharmaceutical Industry. Strategic Management Journal, 20, 655–670.
Shankar, R., Sourish A., & Baveja, A. (2009). Soft-system Knowledge Management Framework for New Product Development. Journal of Knowledge Management 13(1), 135-153.
Stamm, B. Von. (2003a). Innovation = Creativity and Commercialization. In Managing Innovation, Design and Creativity. Chichester: Wiley, pp. 19-38.
Short, S.W., Bocken, N.M.P., Rana, P., & Evans, S. (2012). Business ModelInnovation for Embedding Sustainability : A Practice-Based Approach IntroducingBusiness Model Archetypesâ€, in proceedings of the 10th Global Conference onSustainable Manufacturing (GCSM): Towards Implementing SustainableManufacturing, 31st October - 2nd November, Istanbul, Turkey.
Schaltegger, C.A. (2002). Budgetregeln und ihre Wirkung auf die öffentlichen Haushalte: Empirische Ergebnisse aus den US-Bundesstaaten und den Schweizer Kantonen, Schmollers Jahrbuch 122, 369-413.
Schaltegger, S., & Wagner, M., (2008). Types of sustainable entrepreneurship and the conditions for sustainability innovation. In: Wüstenhagen, R., Hamschmidt, J., Perspectives in Research on Corporate Sustainability. Edward Elgar, Cheltenham, pp. 27-48.
Sharma, S., & Starik, M. (2008). Sustainable Innovation and Entrepreneurship. (Eds.).New. Edward Elgar Publishing Limited. ISBN: 978 1 84720 037 2
Schaltegger, S. & Wagner, M. (2011). Sustainable entrepreneurship and sustainability innovation: categories and interactions, Business Strategy and the Environment, 20(4), 222–237.
Seoa, H., Chungb, Y., & Yoonc, H. (2017). R&D cooperation and unintended innovation performance: Role of appropriability regimes and sectoral characteristics. Technovation, 59, (forthcoming).
Sorensen, J. B., & Stuart, T.E. (2000). Aging, Obsolence, and Organizational Innovation. Administrative Science Quarterly, 45(1), 81-112.
Teece (1986). Profiting from innovation. Research Policy, 15(6), 285-305.
Teece (2010). Capturing value from knowledge assets: the new economy, markets for know-how, and intangible assets. Essays on Technology Management and Policy, 47-75
Titman, S., & Wessels, R. (1998). The Determinants of Capital Structure Choice. The Journal of Finance, 43(1), 1-19.
Tukker, A.; Emmert, S.; Charter, M.; Vezzoli, C.; Sto, E.; Andersen, M.; Geerken, T.; Tischner, U. & Lahlou,S. (2008). Fostering change to sustainable consumption and production: An evidence Based view, Journal of Cleaner Production, 16(11), 1218–1225.
Turban, E., D. King, J. Lee, M. Warkentin, & H.M. Chung. (2002). Electronic Commerce: A Managerial Perspective. New York: Prentice Hall, 2002.
Vincente-Lorente, J. D. (2001). Specificity and Opacity as Resources-Based Determinans of Capital Structure: Evidence for Spanish Manufacturing Firms. Strategic Management Journal, 22 (2).
Wüstenhagen, R., & Boehnke, J., (2008). Business models for sustainable energy. In: Tukker, A., Charter, M., Vezzoli, C., Stø, E., Andersen, M.M. (Eds.), Perspectives on Radical Changes to Sustainable Consumption and Production 1. System Innovation for Sustainability. Greenleaf, Sheffield, pp. 70-79.
Wolff, J.A., & Pett, T.L. (2006). Small-Firm Performance: Modeling the Role of Product and Process Improvements. Journal of Small Business Management 44(2), 268-284.
Zott, C., & Amit, R. (2010). Designing your future business model: An activity system perspective. Long Range Planning, 43, 216–226.
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Submitted
2018-05-03
Accepted
2018-09-12
Published
2018-09-28
How to Cite
Rijanto, A. (2018). Innovation Driven Enterprise, Sustainable Business and Firm Financial Performance. The Asian Journal of Technology Management (AJTM), 11(1), 10–25. https://doi.org/10.12695/ajtm.2018.11.1.2
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