The impact of downsizing on innovation output

Virtually all the past research on the relationship between downsizing and innovation is based on the link between downsizing and innovation input. To date, the relationship between downsizing and innovation output has not been systematically examined. This constitutes an important gap, given the widespread use of downsizing and the prominent role of innovation output in obtaining a sustainable competitive advantage. This study takes a step to close this research gap by investigating the relationship between downsizing and innovation output measured by patents granted before and after downsizing. We analyse a panel dataset of downsizings by UK firms during the 1994 -2004 period. Our results reveal that while low and medium levels of downsizing have no significant impact on innovation output, high level downsizing is more likely to have a significant and negative impact on innovation output.