The effect of innovation on financial performance: a research study involving SMEs

Innovation has become a prime source for gaining a competitive edge in the market for all companies. This study seeks to investigate the effect of innovation of small and medium enterprises (SMEs) on their financial performance, as well as the effect of firm size on the impact of innovation. To examine empirically this relationship, data were collected via a survey of a sample of 98 SMEs belonging to the food machinery industry, and analysed using a regression-based analysis. The empirical findings confirm that an increase in the innovation level increased financial performance. Specifically, they underline the relevance of the innovation developed in order to meet the customers’ needs as well as of those developed in order to differentiate from the competitors in improving the financial performance. Moreover, results suggest that in SMEs the level of technology adopted to develop innovation does not impact on the financial performance.