Decomposing the Drivers of Innovation Performance

Abstract Variance decomposition approaches are often used to identify key sources of heterogeneity in firm performance. While previous variance decomposition studies have decomposed the drivers of firm performance in product markets (financial performance), we focus on differences in firms' abilities to create the resources that underlie such product market successes. Specifically, we focus on innovation performance. We identify the relative importance of technology area, corporation, business unit, and star inventor effects in determining firms' (1) innovation output, (2) innovation social value, (3) innovation value appropriation, and (4) innovation financial value. We find, across our four measures of innovation performance, the business unit effect is by far the largest (32.6 per cent), followed by the star inventor effect (11.5 per cent), the corporate effect (5.5 per cent), and the technology area effect (1.9 per cent). We discuss the implications of these findings for future innovation studies.