New product introduction and product tenure: What effects on firm growth?

This study contributes to the recent empirical literature on the innovation–firm performance relationship by investigating the effect of product introduction on firm growth in a sample of Italian firms from 2000 to 2006. We adopted a novel approach that exploits the interpretative content of the tenure of the last product introduced (i.e., the number of years since its first introduction) as an additional variable into the explanatory scheme of firm sales growth rate. This variable aims to capture peculiar characteristics of new goods, such as their novelty and complexity. The estimated results confirmed the relevance of this model specification and helps in understanding the reason why previous studies have failed to find a statistically robust relationship between product innovation and growth. Moreover, we found the following: first, the release of a new product enhances growth opportunity among multiproduct firms; second, product development promotes the growth of firms belonging to sectors with stronger commitment to research and development; and third, new product development enhances firm growth substantially in those sectors that absorb externally originated patents.

► We extend firm growth models by introducing the tenure of the last product introduced as an additional variable. ► Product tenure captures peculiar characteristics of new goods, such as their novelty and complexity. ► The new product enhances growth in multiproduct firms. ► The new product promotes the growth of firms belonging to R&D intensive sectors and sectors that absorb externally originated patents.