In the era of globalisation and with the advent of knowledge economies, organisational innovation has assumed a critical role in enhancing economic performance of¯rms. Proponents of the Resource Based View of the¯rm and its more recent extensions such as the Knowledge Based View and Dynamic Capabilities Theory have suggested that generation, di®usion and application of organisational knowledge could be the source of sustained competitive advantage and superior performance of¯rms. While there is

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... near unanimity in accepting the vital role of innovation in a¯rm's performance, consensus on what constitutes organisational innovation and how to measure it has proven to be elusive so far. Most previous research in this area has conceptualised innovation through one or more dimensions of a¯rm's innovative capability using R&D of a¯rm only. The measurement of the construct has thus re°ected this narrow conceptualisation with a single measure of R&D expenditure being the most often used proxy. This study utilises a broader de¯nition of organisational innovation capabilities that includes the generation, dissemination and strength of innovative activity in a¯rm. The unique features of this study is that it uses multiple indicators of a¯rm's innovation pro¯le along with lagged measures of market value using¯xed e®ects panel data analysis.