Innovation and financial performance of companies: Evidence from companies in Scandinavia

Abstract

This thesis investigates the impact of research and development (R&D) expenditure and patents on the financial performance of firms in Scandinavia. Using a dataset of 11,700 observations spread across 900 firms and employing regression analysis, quantile regression, and subgroup regressions, we find that R&D expenditure shows varied significance, with a more substantial impact on firms with lower profitability, while patent count exhibits moderate significance when considering a lag effect, indicating the benefits of patents may manifest over time.

Subgroup analyses reveal that R&D expenditure has the most pronounced impact in the Wholesale and Retail Trade and Scientific and Technical Activities sectors, while the Manufacturing sector shows a consistent positive association with R&D expenditure. Patent count has a moderate significant effect in Scientific and Technical Activities, highlighting the industry’s use of patents as a protection mechanism for their innovation, allowing the firms to capitalise on their innovations.

The unique context of the Nordic Model, characterised by strong welfare systems and high levels of social support, provides a backdrop that influences these findings. While the model’s emphasis on collective bargaining and high employment rates may limit immediate financial benefits from innovation, it supports a balanced approach to resource allocation, fostering longer term profitability. These findings provide practical implications for developing business strategies and policies to encourage continuous R&D investment and efficient use of patents.