Inter-organizational Cooperation, Financial Constraints and Innovation: Evidence from Large Manufacturing Companies

Abstract

This study examines the relationship between inter-organizational cooperation, financial constraints, and innovation performance of large manufacturing companies. It uses descriptive and explanatory research designs and a quantitative research approach. Using a structured questionnaire partially adopted from the World Bank Innovation Follow-Up Survey instruments, we collect and use primary data from 79 large manufacturing companies in Addis Ababa. The study used a standard probit model as a baseline model along with several robustness tests. We find several interesting findings. Firstly, inter-organizational cooperation can be used as a coping mechanism to alleviate or reduce the adverse effect of financial constraints; however, not all modes of inter-organizational cooperation are effective. Cooperation with domestic firms, academic and research institutions, and government are effective. Despite having a significant direct role in promoting corporate innovations, cooperation with foreign firms and
consulting companies is less effective in alleviating or reducing the adverse impact of financial constraints on large manufacturing companies likely to innovate. The managers of financially constrained companies can consider cooperation as a coping strategy to mitigate the adverse influence of financial constraints on their innovation performance but should pay attention to partner selection.