On young highly innovative companies: why they matter and how (not) to policy support them

Abstract

Recent policy initiatives in the EU aim at supporting so-called young highly innovative companies (YICs). This article provides empirical evidence from German CIS data on the innovative performances of this specific type of firms, supporting why they matter. We first characterize YICs in the sample of innovation active firms. We show that firms that combine newness, smallness, and high R&D intensity are rare in the sample of innovative firms, but achieve significantly higher innovative sales than other innovative firms, especially innovative sales that are new to the market. Not surprisingly, YICs view financial constraints, both internal and external, as an important factor hampering their innovation activities, significantly more so than other innovation active firms. This access to finance problem is an often used motive for government intervention. On the effectiveness of subsidies, our results suggest that the subsidy allocation mechanisms at place in Germany during the sample period are not associated with relatively higher innovative performance of the subsidized YICs as compared to other recipients.