The effect of Intellectual Capital on Product Innovativeness in SMEs

This paper examines the relationship between intellectual capital and different product innovation strategies based on a longitudinal study of Austrian firms assuming that intellectual capital is an important complementary asset for innovation activities. The data was collected in 1995 and 2003 using the same questionnaire among a firm sample of 91 small and medium-sized firms in manufacturing industries. The study delivers evidence for a positive association between human capital and product innovativeness. Moreover, firms, which have strength in both human and structural capital have a higher likelihood to be highly innovative. In addition, the research reveals that intellectual capital discriminates more strongly between highly and less innovative firms while the traditional measure of R&D expenditure has a stronger explanatory power in differentiating between not innovative and less innovative firms.