Innovation has the power: the case of the Italian automotive sector during economic downturns

ABSTRACT

The COVID 19 pandemic has exposed businesses to high uncertainty through a number of channels. While the magnitude of this economic disruption is much larger than the 2008–2009 global financial crisis, there are pertinent learnings from the latter which can accelerate the recovery envisaged after the current crisis. To identify that, in this paper, we analyse the determinants of firms’ ability to maintain positive performance during an unexpected downturn. We do this by using a multinomial logit analysis on Italian automotive industry firm-level data covering the years before and after the 2008 financial crisis. The most significant results are that innovation and intangible assets play a key role in shaping the degree of firm ability to face external shocks. Our findings provide insights into solutions that have practical importance for companies pertaining to a mature industry like automotive. Learning from the economic downturn faced in 2008–2009, which we highlight in this study, can act as the first step into a green and sustainable recovery desired in the aftermath of the COVID 19 pandemic.

Keywords:

• Innovation
• firm growth
• intangibles
• crisis
• automotive

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 The European Statistical Office (EUROSTAT) registered that between April 2008 and April 2009 industrial production in the EU-28 dropped by more than 22 percentage points and EU unemployment rate soared by more than 2 percentage points.

2 The Statistical Classification of Economic Activities in the European Community, commonly referred to as NACE (for the French term "nomenclature statistique des activités économiques dans la Communauté européenne" (NACE, 2008)), is the industry standard classification system used in the European Union.

3 The city of Turin in Italy is built around, and in part, by Fiat and the auto industry. Therefore, in 2002, when the company faltered under an enormous debt load and rapidly falling market share, mass layoffs and the closure of 18 plants worldwide were announced (Whitford and Enrietti, 2005).

4 Bureau van Dijk (BVD) is a major publisher of business information, and specializes in private company data combined with software for searching and analysing firms. It is a Moody’s Analytics company.

5 The OECD furnishes data on the price index implicit deflator byNACErev.2 code 29.

6 We use a dummy variable for the variable Patent because only few firms of our sample applied for patent before the 2008 financial crisis. The distribution of the number of patent produced from the automotive companies of our sample is skewed to the right. Few companies produce a lot of patents while many others produce one or zero patents. Following Afifi et al.(2007), we also code our Patent variable as a binary variable. According to the authors this can be a good method for improving regression analysis for skewed continuous or counted responses.

7 In particular, this dataset Lotti and Marin(2013) matched Italian firms from AIDA database (Bureau van Dijk) to applicants at the European Patent Office (EPO) in PATSTAT for the period 1978–2008.

8 The firms that entered the business after 2008 are not considered in our sample. Moreover, the firms that exit the market after the 2008 crisis, are included in the category Worst Performers or Deteriorated Performers depending on their sales performance before the crisis.

9 see robustness checks.