Risk attitude, product innovation, and firm growth. Evidence from Italian manufacturing firms

We study the impact of individual risk attitude on the relationship between product innovation and firm performance, in a model of firm growth with endogenous product selection. We exploit a unique dataset collecting firm-level data on new product introductions and individual attitudes towards risk elicited from a lottery. Empirical evidence shows that the introduction of a new product affects firm growth significantly only in the sample of risk-loving individuals, thus supporting the hypothesis of a negative correlation between the firm growth and the risk aversion of the decision maker. ► We study the impact of individual risk attitude on the relationship between product innovation and firm performance. ► A proxy of individual attitudes towards risk has been elicited from a lottery in a sample survey of Italian entrepreneurs. ► The contribution of the new product to firm growth is larger in the case of risk loving entrepreneur. ► Risk-averse individuals appear to select products that affect firm growth less intensely.