Vocational training support and innovation at SMEs

PurposeWhile the value of human capital for technological innovation is well acknowledged, literature on the role of vocational training in corporate innovation is notably scarce. The purpose of this study is to assess the effect of government support for small and medium-sized enterprise (SME) competencies on Korean firms' innovation. The author investigates SMEs' patent applications (supported by the government to varying degrees) while accounting for firms' market position, ownership and management structure, as well as prior changes in firms' technologies, products, processes and other characteristics. Alternative hypotheses about management motivation - the "lazy manager", "career concerns" and "special East Asian institutional constraints" hypotheses - are also evaluated.Design/methodology/approachCensored and count data analysis methods are used on a panel of 595 Korean firms covering 2005-2015 from the Korean Human Capital Corporate Survey, Intellectual Property Office and National Investment Commission. A regression discontinuity estimator accounts for potential endogeneity because of support for vocational training at firms.FindingsFirms receiving training support are more innovative than firms without support, but latent effects may play a role. The regression-discontinuity model suggests that firms that succeeded only marginally in obtaining support had higher innovative output than non-recipients near the eligibility threshold.Originality/valueThe findings of this study establish that government support had the intended effect on SMEs' technological capacity. This cannot be discounted as a simple crowding-out effect. The author also establishes that management-ownership separation within firms was conducive to innovation, that product competition had an inverse U-shaped effect and that management-ownership separation had a substitutable relationship with competition in overcoming managers' effort avoidance. The findings support the "lazy manager" hypothesis over the "career concerns" and the "special East Asian institutional constraints" hypotheses.