The Effects of Business Environments on Innovation Activity and Firm Performance: Based on Workplace Panel Survey of South Korea

Until now, innovation activities have been promoted to maintain sustainable competitive advantage by expanding R&D investment or acquiring external knowledge. However, innovation activity may also be one of strategies for creating new breakthroughs in difficult situations, so it is necessary to analyze the relationship between innovation activity and firm performance more closely. Therefore, this study aims to analyze the effects of business environments on innovation activity and firm performance, using the data of Workplace Panel Survey (WPS) from Korea Labor Institute. The business environments are largely divided into internal and external environments. Internal environments examine the professional management system and the regular/official personnel evaluation system, because organization management can affect innovation activity or firm performance. In addition, in order to determine what situation firms are facing in the market, external environments examine the degree of competition in domestic market and the degree of market demand. As a result of the analysis, the regular/official personnel evaluation system and the degree of market demand positively influence both innovation activity and firm performance, but the professional management system and the degree of competition in domestic market are somewhat different. That is, firms should consider the effects of internal and external business environments for innovation activity and firm performance. This study can be used as basic data for planning the innovation strategy of firms.