Innovation strategy by firms: do innovative firms grow more?

Linking innovation with firms’ growth and performance is still a challenge for research. It is difficult to observe the effect of new products and processes on firms’ performance, because it may take a long time between innovation and the economic gain of firms. This paper intends to address this challenge and look at the relationship between innovation and firm performance, distinguishing product and process innovation. We join two different databases: the third Community Innovation Survey (CIS III) survey and the Portuguese Quadros de Pessoal. We observe an impact of innovation activities in performance gains three years later. This effect is observed only for small firms (less than 50 employees), and it is stronger for newer firms, thus leading to conclude that innovation activities may be a source of competitive advantage, especially for new firms.