Essays on innovation and business cycles

This thesis contains three essays on the drivers of innovation and growth during business cycle downturns. It brings evidence from the Great Recession, the strongest downturn since the 1930s, and focuses on the case of Spain, a country that was seriously hit by the recession. The first essay analyses the performance of Spanish firms during the Great Recession. Evidence from the crisis period shows that having a strategic firm profile, through innovation, internationalisation, and participation in expansive markets matters for growth in bad times. In comparison, evidence from the pre-crisis period shows that being investment intensive is related to growth in good times. The second essay investigates if being innovative helps firms to shield themselves from the disruptive effects of a crisis. I find strong evidence that innovative firms suffer less compared to non-innovative firms during a crisis. The effect operates through innovative firms differentiating their products to adapt to unexpected rapid decline in economic activity. The third essay studies if the impact of foreign acquisition on innovation of acquired firms is similar in good and bad times. I find that R&D activities are restructured away from the acquired firm to firms abroad irrespective of macroeconomic conditions. Acquisition in good times leads to an increase in process innovation, but a lowering of product differentiation. Comparatively, firms acquired in bad times engage less in process innovation since the gains from achieving economies of scale fall, but they also do relatively more product differentiation because the cost of cannibalising sales of existing products is low