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Service sector firms have long been neglected in innovation studies despite their increasing importance for economies. However, recent research has revealed that service firms do innovate, although they follow distinct paths and reach different outcomes than those of the manufacturing sector. Measuring the effects of innovation on performance has thus become an essential concern for policy makers and business leaders alike. This dissertation specifically contributes to the current debate on the effects of innovation on performance at the firm level in the service sector by shedding more light on the characteristics of these complex relationships and by defining the underlying mechanisms. For these purposes, an intellectual capital perspective is adopted. Classification JEL: O31, O32, L80, M21