Pandemic Effects: Do Innovation Activities of Firms Suffer From Long-Covid?

The COVID-19 pandemic has affected firms in all economies worldwide. We investigate the impact of the pandemic on firms’ innovation activities. Employing data from a representative sample of German firms, we find consistently with real options theory that negatively affected firms substantially reduced R&D and other innovation expenditures not only in the first year of the pandemic (2020), but also in the two subsequent years indicating ’Long–Covid’ effects on innovation. Furthermore, firms with higher pre-treatment digital capabilities show higher innovation resilience during the pandemic. Finally, our results show an asymmetric firm behaviour. Firms profiting from the pandemic situation also cut their innovation activities substantially in favor of increasing short-run production.