The elixir (or burden) of youth? Exploring differences in innovation between start-ups and established firms

Abstract

Despite the widely acknowledged role of start-ups in economic development, little is known about their innovative activities compared with those of established firms. Drawing on a sample of 12,209 UK firms, we differentiate between services and manufacturing firms and, using a matching estimator approach, demonstrate that start-ups differ significantly from established firms in their innovation activities. We find that in services, being a start-up increases the likelihood of product innovations. However, in manufacturing, we find no significant differences in the likelihood of product innovation between start-ups and established firms. When examining the returns to innovation, we find that start-ups have a significant advantage both in services and in manufacturing. We explore the implications of these results for theory and policy