**4.4 Innovation survey indicator: European Commission implements the Community Innovation Survey (CIS)**

The European Commission implements the Community Innovation Survey (CIS is a harmonized survey of innovation in enterprises coordinated by Eurostat and currently carried out every 2 years in EU member states and several European Statistical System (ESS) member countries). CIS is an innovative action in a number respect. First, it is an attempt to collect internationally comparable innovation measures. Second, it collects data at a highly disaggregated level and makes it available to

analysts. CIS collects data on two types of product innovations, three types of process innovations, four types of organizational innovations, and four types of marketing innovations referred to Oslo Manual 2018 [28]. As known, Community Innovation Survey (CIS) is the survey-based indicators carried out in all EU member-states. However, is this CIS survey really the best to use for innovation indicators? Is it justified? Next section discusses the most recent innovation indicator known as the texted-based corporate innovation index.

#### **4.5 Texted-based corporate innovation indicators**

The texted-based corporate innovation index is constructed from a textual analysis of analyst reports of S&P 500 firms, which fit into a topic modeling tool called the Latent Dirichlet Allocation (LDA) method of Blei, Ng, and Jordan [39]. It draws content from a common set of 15 topics on the text of a large corpus of analyst reports and then measures the level of a firm's corporate innovation by the intensity with which analysts write about the innovation topic. The topics are selected based on the word distribution that has the smallest Kullback-Liebler divergence with a benchmark innovation textbook. The selected topics are considered a reliable innovation proxy, both qualitatively and quantitatively. The examples of the words used are service, system, technology, product, and solution. Qualitatively, the words selected are the words that analysts usually use to describe firm innovation. Quantitatively, the topic correlates strongly with patents among the patenting firms.

Bellstam, Bhagat, and Cookson [6] demonstrate that the text-based corporate innovation index not only strongly correlates with patenting efficiency but also captures innovation activities by firms that do not generate patents. Recently, the textual analysis method had gained popularity and is used by many researchers when conducting empirical research (for example, [40–42]). Textual-based measure of innovation incorporates many aspects of intellectual investment. It captures the topic of R&D and patents, as well as non-patented practices, which is deemed beneficial to the firm. Another important advantage of the text-based innovation index is that it can be computed for firms that do not disclose their R&D expenditure. Text-based innovation allows us to see the big picture of the plan that the organization is trying to achieve through analyst reports, which are easily accessible. Thus, the obvious advantage of the text-based innovation index is that it can capture innovation for firms that do not patent and R&D. Another important advantage of the text-based innovation index is that it can be computed for firms that do not disclose their R&D expenditure. Moreover, many researchers lately when conducting empirical research on corporate innovation use the textual analysis method. This method has recently gained popularity among many researchers and recent studies (for example, [43–48]).

It is of great importance for investors and shareholders to understand what promotes innovation investment in their owned firms. Emphasizing that a long-term investment in corporate innovation bares high risk, but it is an action to enhance benefits to the shareholders in the long run. Therefore, it is not overstated to mention that innovation is one of the key factors that boost the performance and growth of the firm, especially for those technology firms where innovation plays a major role for the firm to thrive. Previous literature reports a positive linkage between innovation and a range of various positive performance outcomes [12]. Innovation is also a key element in assisting firms to gain competitive advantage [13], expand market share [14], and improve performance [15]. Next section discusses the linkage between innovation and performance outcomes.
