Innovation and financial performance of companies doing business in Brazil

In this paper, we analyze the relationships among innovation efforts, the impacts of these innovations, and the financial performance of Brazilian companies. We hypothesize that innovation efforts do not directly translate into financial performance. Due to the inherent uncertainty of innovative projects, such efforts must first lead to effective innovation results or impacts before they are capable of contributing to a company's financial performance. Using the Brazilian Institute of Geography and Statistics' (IBGE) comprehensive official databases on innovation and performance, we study 5,025 firms using exploratory factor analysis and structural equation modeling. The results suggest that efforts in innovation possibly generate impacts; however, these impacts do not necessarily imply better financial performance. Therefore, although firms' efforts may lead to new products, they will not contribute to financial gains in the short term, reflecting the risky and costly nature of innovation. The study aims to contribute to the discussion on firm-level impacts of innovation from the context of a large developing country, since empirical results of the literature are mixed.