Does Innovation Efficiency Matter to Firm Performance the Moderating Role of Environmental Uncertainty?

Abstract

the loss of the firm’s position in the market environment (Evangelista & Vezzani, 2010). Several types of research confirmed the positive impact of innovation on firm performance. Innovation is the main factor that affects the performance, long-term viability, and sustainability of the organization (Zapata-Cantu et al., 2016). Yin & Sheng (2019) stated that innovation is aimed at improving the firm’s performance in the long term. Evangelista Abstract: We examine the relationship between innovation efficiency and firm performance, as well as the moderating role of environmental uncertainty in the relationship. Competitive globalization pressures, dynamic changes in customer demand, and rapid technological advances make it difficult for firms to achieve and maintain their competitive advantage. We argue that when environmental uncertainty increases, innovation is needed to maintain the firm’s competitive advantage, by making it efficient in its implementation. We tested manufacturing companies listed on the Indonesia Stock Exchange year 2013-2019 with a total number 564 observations. We find that a innovation efficiency improves firm performance, and environmental uncertainty can encourage firms to be more efficient in innovating to improve their performance. This study contributes to a greater understanding of the relationship between innovation efficiency and firm performance in the situation of dynamic environmental uncertainty from the perspective of contingency theory. The evidence shows that environmental uncertainty, as a contingency problem, is an opportunity for firms to improve their performance, by being more active in carrying out innovation projects. When environmental uncertainty increases, policymakers within the firm must ensure that the innovation projects carried out can run efficiently, thus providing great benefits for improving firm performance. the interaction of innovation efficiency and environmental uncertainty with firm performance. The table shows that Adjusted R 2 has a value ranging between 0.244-0.253 and the value of F-statistics ranges between 26.83-35.94 (significant at the level of p-value < 0,01). These values indicate that the model is quite suitable to explain about 24.4%-25.3% changes in the tested relationship.