Does innovation help the most and the least productive firms equally?

Purpose This paper investigates how innovation activities impact the productivity of European firms in the manufacturing sector. Design/methodology/approach This paper provides a novel perspective on innovation-productivity dynamics by employing quantile analysis, extending prior research that primarily focuses on average effects and overlooks the complexity of productivity heterogeneity. Findings The findings confirm the heterogeneous impact of innovation on firms with varying productivity levels. The results show that while capital intensity, size, process innovation, and human capital contribute positively to productivity enhancement, their effects vary across firms of different productivity levels. Capital intensity and firm size predominantly enhance the productivity of high-performing firms, whereas process innovation and human capital exert greater influence on firms operating at lower to medium productivity levels. Further, the results indicate that some types of innovation activity may not exert a positive or significant effect on productivity. Originality/value These findings offer actionable insights for managers on leveraging different innovation types to drive firm performance and guide policymakers in designing interventions to promote innovation and economic growth in manufacturing sectors.