Determinants of Abandoning Innovative Activities: Evidence from Spanish Firms

Abstract

We empirically analyse the effect of firms’ barriers to innovation on the probability of abandoning innovation projects. Specifically, we study factors related to the availability of finance, knowledge and market conditions. We use a sample of more than 8,300 innovative Spanish firms for the period 2005–2007. We find that all obstacles to innovation have a positive effect on the probability of abandoning innovative activities. Results show that market-related factors seem to be the most important determinants of innovation failure. Analyzing results by firm size, we find that, for small-medium firms, the main factors that lead to abandoning innovative projects are competition from established firms and market uncertainty. In contrast, for large firms, the most important barriers are the lack of qualified personnel and the availability of external finance. These results might suggest that large and small-medium firms differ in the scale and complexity of their innovative projects.