**5. Linkage between innovation and positive performance outcomes**

The effect of corporate innovation on firms' performance is widely examined in the literature. Many theoretical and empirical studies document that corporate innovation tends to improve firm performance [49–51]. For example, studies found that an increase in corporate innovation will lead to the following effects on firm; increase firm profitability [52], positive impact on firm's profit margin [53], increase firm's market value [54], increase in firm's intangible assets [55]. Thus, corporate innovation is generally perceived as a crucial key factor in firm performance and firm growth. This fact is reflected through the significant increase in research and development investments among US firms since the 1970s [56]. In many studies, innovation is regarded as intangible assets [55–57]. Examples of intangible assets are intellectual capital, human capital (the value of employee training, morale, loyalty, knowledge, etc.), and process-related capital (the value of information technology, production processes, etc.) [56]. Empirical studies show that intangible asset in the form of intellectual capital contributes to the lower cost of capital and creates value-added to the firm and therefore is positively associated with firm performance [58, 59]. The reason is that intangible asset is considered as the firm's strategic resource, able to create value-added for the firm. For example, the know-how, goodwill, and trademark help the firm to strengthen its competitive advantage putting the firm in a better position in utilizing the existing resources [60]. Innovation helps firms to achieve competitive advantage and enhance firm's productivity [61]. Consequently, this not only lowers the firm cost of production and improves the firm's competitiveness, but also eventually helps to improve firm performance [6, 62]. Stewart [59] showed that firm's performance depends on the ability of its resources to create value-added. A study done by Tan et al. [63] confirmed these results. Using data from 150 publicly traded companies in Singapore, Tan et al. [63] showed that intellectual capital is positively associated with the current firm's financial performance. Thus, it is generally believed that an innovation-orientated firm is likely to have better firm performance than a firm that is not innovation-driven.

Despite the numerous findings on the positive association between corporate innovation and firm performance, some studies argue that the high cost of innovation investment may outweigh the benefits [64]. This is because the innovation development process requires a huge amount of capital investment while taking a substantial risk. Additionally, the process involves firms repeatedly making mistakes and failures, such that the lessons learned can be applied to improve product and service; therefore, only firms with sufficient capital and accumulated profit will be able to handle investment failure [65]. In short, investment in innovation is risky and challenging due to its uncertain outcomes, exacerbating the information asymmetry and conflicts of interest with financers [66]. Consequently, the firm faces financial constraints. Thus, it is possible to argue that due to the nature of innovation consisting of high uncertainty, high-risk nature, and high cost of investment, the favorable effect of corporate innovation on firm performance is reduced.
