Vocational Training Support and Innovation at SMEs

Purpose: While the value of human capital for technological innovation is well acknowledged, literature on the role of vocational training in corporate innovation is notably scarce. This study assesses the effect of government support for small and medium-sized enterprise (SME) competencies on Korean firms’ innovation. We investigate 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: Censored 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 due to support for vocational training at firms.Findings: Firms 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: Our findings establish that government support had the intended effect on SMEs’ technological capacity. This cannot be discounted as a simple crowding-out effect. We also establish 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