Effect on firm performance of support from Innovation Norway

In this report we study possible effects of government support to firms from Innovation Norway (IN) – a government agency that aims to promote firm growth through innovation programs, regional support and other industrial policies. We document a tool for management by objectives/management by results (MBO/MBR) for IN, intended for repeated use in the process of goal setting and decision making.

We compare firms that received support from IN during 2001-2012 (the “treated” firms) with a comparison group of non-treated firms that we have matched according to a set of individual firm characteristics. We estimate average treatment effects of participation (average treatment effects on the treated) in four types of IN-programs (assignments): innovation, regional, lending and innovation cluster. Our evaluation context is not an experimental one and one should therefore not conclude that our findings necessarily represent causal effects. Nonetheless, we have taken into account selection effects due to fixed firm effects, which are eliminated through differencing, and observable firm characteristics, which are controlled for through propensity score matching. Average treatment effects on the treated firms are measured as differences in average annual growth rates between treated and matching firms (matched difference-in-differences) in the first 3-year period following the year of assignment to treatment by IN.

For the innovation and regional development assignments we find significant positive effects with regard to the performance indicator variables number of employees, sales revenues and value added, but much smaller effects with regard to labor productivity and returns to total assets. On the other hand, we find no evidence that the commercial and low-risk lending assignment enhances firm performance. Moreover, we find no evidence that financial support to start-up firms improves survival probabilities of the client firms compared to the matching firms, measured five and ten years after start-up. Participation in IN-supported clusters leads to higher sales and employment in firms during the immediate period after enrollment.