Is investing in innovation an effective strategy in times of crisis? Some evidence from Poland

Abstract

The current financial crisis sparked debate about the ability of companies to resist negative effects of the global recession. This debate continued among investors, policymakers and entrepreneurs who could not reach unanimous conclusions whether innovations protected companies from the adverse effects of the global recession. Furthermore, policymakers argued whether or not innovative industries should be supported by serious restructuring and government help. Equity investors began to tailor their trading strategies to the crisis-induced conditions by targeting companies of certain properties – especially those representing innovative industries. Given the above, we analyze the role of innovations in shielding companies from the global financial crisis. We investigate whether equity investments targeting innovative companies were an effective strategy during the global financial crisis. Using public financial data for Polish companies, along with a series of interviews with stock market practitioners, we find that innovative business strategies proved more profitable than strategies that pivoted about the introduction of novel products. To this end, we argue that investments in equities issued by innovative companies remains profitable and shield investors from experiencing significant losses.

Keywords:

• innovative investee companies
• financial crisis
• equity investments
• innovative development