Does financialization affect innovation performance? Evidence from the aerospace and defence industry

Innovation is essential for enhancing organizational performance; however, the increasing influence of the financial sector often undermines manufacturing activities, a phenomenon known as the financialization of non-financial companies. This article aims to evaluate the impact of financialization on innovative performance (incremental and radical) and, consequently, economic performance in companies in the Aerospace and Defense (A&D) sector. Data from 297 global companies were analyzed, using Thomson Reuters Eikon database, from 2003 to 2022. The results indicate that investments in incremental innovation have decreased in recent years, although they still contribute positively to short-term financial performance. Paradoxically, efforts aimed at radical innovation, although limited to a specific portion of the sector, have increased. It was observed that the increase in financialization is associated with improvements in the company's indicators; however, from a critical level, further increments in financialization are correlated with a deterioration in innovative and economic performance.