Firm Innovation's Mediation Effect on Firm Performance

Abstract

This paper is to empirically verify whether there always exists a direct relationship between firm innovation and firm performance with the experiences of the 118 major Korean Construction companies, 1997-2003, during which there has been a radical change in market leadership among competitors due to the crisis of foreign currencies in Far East Asian countries including Korea. The empirical findings by path and AMOS analysis shows that firm innovation affects indirectly on firm performance through product fit and process fit as mediating variables, and while firm innovation's effect on fits is contingent with the external factors, product fit/process fit's effect on firm performance is working universally, suggesting that product fit/process fit will be a more decisive indicator for firm success/failure than competitive advantage.