Firm age and innovation
Article Type: Abstracts From: Strategic Direction, Volume 25, Issue 3
Balasubramanian N. and , Lee J.Industrial & Corporate Change, October 2008, Vol. 17 No. 5, Start page: 1019, No. of pages: 29
Purpose – to model the relationship between firm age and innovation quality. Design/methodology/approach – discusses relationships between firm demographics, industry-type, innovation, R&D and performance, observes that incumbent firms can be disadvantaged when a new technology is introduced,cites prior studies of the firm-age/learning relationship to suggest that firms’innovation quality changes over time, and hypothesizes that the technical quality of innovations will increase if firms face either small learning rates or significant increase in adjustment costs. Assumes that firms choose optimal quality relative to the technological frontier every period as a function of the benefits and adjustment costs, lays out derivation of the model and its associated propositions, accounts for increases in technical quality brought by an innovation and the economic value obtained by the innovating firm, allows for time-related decrease in benefits, includes inertia and learning effects,distinguishes between young and mature industries, and relates innovation to firm age, size, R&D, technology and heterogeneity. Analyses data pertaining to 494 US firms and 180,515 patents, uses the number of forward citations as an indicator of an innovation’s technical quality, and incorporates the number of legal claims made for a patent, differentiating between high-technology and non-hi-tech industries. Findings – reports that innovation quality decreases with firm age, conducts further tests to assess the impact of this relationship on market valuations of a firm’s knowledge stock, and finds that one year of firm ageing translates to a loss of approximately $3 m for a 10 per cent increase in R&D intensity. Originality/value – detailed analysis.ISSN: 0960-6491Reference: 37AZ044DOI: 10.1093/icc/dtn028
Keywords: Innovation, Learning, Organizational performance,Patents, Quality, Research and development, Shareholder value analysis, United States of America
