Show me how to live: Firms' financial conditions and innovation during the crisis

This work evaluates how firms' financial conditions influence the relationship between firms' innovation and their survival during the recent economic crises. By using an original and integrated sample of 6542 Italian manufacturing firms, we show that, in general, innovation still grants a survival premium during recession times even when financial conditions moderate the relationship innovation-survival. We argue that firms' financial conditions do not eliminate the innovation premium in terms of survival, even if they reduce it. Firms introducing any kind of innovation and, in particular process innovations, still have higher probabilities than non-innovators to survive the crises even when their financial structure is taken into consideration. The reduction in the survival premium depends crucially on the financial variables considered. Leverage reduces most the innovation premium while the share of long-term debt reduces less – and in a certain case even increases – the survival premium from innovation.