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Distance to Frontier and Appropriate Business Strategy

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Author Info
Alexander Coad ()

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Abstract

This paper is an empirical test of the hypothesis that the appropriateness of different business strategies is conditional on the firm's distance to the industry frontier. We use data on four 2-digit high-tech manufacturing industries in the US over the period 1972-1999, and apply semi-parametric quantile regressions to investigate the contribution of firm behavior to market value at various points of the conditional distribution of Tobin's q. Among our results, we observe that innovative activity, measured in terms of R&D expenditure or patents, has a strong positive association with market value at the upper quantiles (corresponding to the leader firms) whereas the innovative efforts of laggard firms are valued significantly less. Laggard firms, we suggest, should instead achieve productivity growth through efficient exploitation of existing technologies and imitation of industry leaders. Employment growth in leader firms is encouraged whereas growth of backward firms is not as well received on the stock market.

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Paper provided by Max Planck Institute of Economics, Evolutionary Economics Group in its series Papers on Economics and Evolution with number 2008-07.

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Date of creation: Jun 2008
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Handle: RePEc:esi:evopap:2008-07

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Related research
Keywords: Distance to frontier; Strategy; Market value; Innovation; Firm Growth Length 37 pages;

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Find related papers by JEL classification:
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Alex Coad, 2007. "Firm growth : a survey," Documents de travail du Centre d'Economie de la Sorbonne r07024, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne. [Downloadable!]
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  2. Griliches, Zvi, 1990. "Patent Statistics as Economic Indicators: A Survey," Journal of Economic Literature, American Economic Association, vol. 28(4), pages 1661-1707, December. [Downloadable!] (restricted)
    Other versions:
  3. Benhabib, Jess & Spiegel, Mark M., 1994. "The role of human capital in economic development evidence from aggregate cross-country data," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 143-173, October. [Downloadable!] (restricted)
  4. Philippe Aghion & Richard Blundell & Rachel Griffith & Peter Howitt & Susanne Prantl, 2004. "Entry and Productivity Growth: Evidence from Microlevel Panel Data," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 265-276, 04/05. [Downloadable!] (restricted)
  5. Louis K. C. Chan, 2001. "The Stock Market Valuation of Research and Development Expenditures," Journal of Finance, American Finance Association, vol. 56(6), pages 2431-2456, December. [Downloadable!] (restricted)
  6. Alex Coad & Rekha Rao, 2006. "Innovation and market value: a quantile regression analysis," Economics Bulletin, Economics Bulletin, vol. 15(13), pages 1-10. [Downloadable!]
  7. Coe, David T & Helpman, Elhanan & Hoffmaister, Alexander, 1995. "North-South R&D Spillovers," CEPR Discussion Papers 1133, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Mansfield, Edwin & Schwartz, Mark & Wagner, Samuel, 1981. "Imitation Costs and Patents: An Empirical Study," Economic Journal, Royal Economic Society, vol. 91(364), pages 907-18, December. [Downloadable!] (restricted)
  9. Bronwyn H. Hall & Adam B. Jaffe & Manuel Trajtenberg, 2001. "The NBER Patent Citation Data File: Lessons, Insights and Methodological Tools," NBER Working Papers 8498, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Richard C. Levin & Alvin K. Klevorick & Richard R. Nelson & Sidney G. Winter, 1987. "Appropriating the Returns from Industrial Research and Development," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(1987-3), pages 783-832. [Downloadable!]
  11. Alan B. Krueger & Mikael Lindahl, 2000. "Education for Growth: Why and For Whom?," NBER Working Papers 7591, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January. [Downloadable!] (restricted)
  13. repec:fth:harver:1473 is not listed on IDEAS
  14. Nicoletti, Giuseppe & Scarpetta, Stefano, 2003. "Regulation, productivity, and growth : OECD evidence," Policy Research Working Paper Series 2944, The World Bank. [Downloadable!]
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  15. Daron Acemoglu & Philippe Aghion & Fabrizio Zilibotti, 2006. "Distance to Frontier, Selection, and Economic Growth," Journal of the European Economic Association, MIT Press, vol. 4(1), pages 37-74, 03. [Downloadable!] (restricted)
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  16. Coad, Alex & Rao, Rekha, 2008. "Innovation and firm growth in high-tech sectors: A quantile regression approach," Research Policy, Elsevier, vol. 37(4), pages 633-648, May. [Downloadable!] (restricted)
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  17. Aghion, Philippe & Meghir, Costas & Vandenbussche, Jérôme, 2005. "Growth, Distance to Frontier and Composition of Human Capital," CEPR Discussion Papers 4860, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  18. Richard R. Nelson & Edmond S. Phelps, 1965. "Investment in Humans, Technological Diffusion and Economic Growth," Cowles Foundation Discussion Papers 189, Cowles Foundation, Yale University. [Downloadable!]
  19. Bruno Amable & Lilas Demmou & Ivan Ledezma, 2008. "Competition, innovation and distance to frontier," Documents de travail du Centre d'Economie de la Sorbonne r08064, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne. [Downloadable!]
  20. Rachel Griffith & Stephen Redding & John Van Reenen, 2000. "Mapping the two faces of R&D: productivity growth in a panel of OECD industries," IFS Working Papers W00/02, Institute for Fiscal Studies. [Downloadable!]
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  21. Daron Acemoglu & Philippe Aghion & Fabrizio Zilibotti, 2003. "Vertical Integration and Distance to Frontier," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 630-638, 04/05. [Downloadable!] (restricted)
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  22. Blanchard, Olivier Jean & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 1994. "What do firms do with cash windfalls?," Journal of Financial Economics, Elsevier, vol. 36(3), pages 337-360, December. [Downloadable!] (restricted)
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  23. Geroski, Paul A & Machin, Stephen & Walters, Christopher F, 1997. "Corporate Growth and Profitability," Journal of Industrial Economics, Blackwell Publishing, vol. 45(2), pages 171-89, June. [Downloadable!] (restricted)
  24. Abramovitz, Moses, 1986. "Catching Up, Forging Ahead, and Falling Behind," The Journal of Economic History, Cambridge University Press, vol. 46(02), pages 385-406, June. [Downloadable!]
  25. Frey, Bruno S & Jegen, Reto, 2001. " Motivation Crowding Theory," Journal of Economic Surveys, Blackwell Publishing, vol. 15(5), pages 589-611, December. [Downloadable!] (restricted)
  26. Alex Coad, 2005. "Testing the principle of 'growth of the fitter': The relationship between profits and firm growth," Emory Economics 0531, Department of Economics, Emory University (Atlanta). [Downloadable!]
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  27. Roger Koenker & Kevin F. Hallock, 2001. "Quantile Regression," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 143-156, Fall. [Downloadable!] (restricted)
  28. Nickell, Stephen & Nicolitsas, Daphne & Patterson, Malcolm, 2001. " Does Doing Badly Encourage Management Innovation?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(1), pages 5-28, February. [Downloadable!] (restricted)
    Other versions:
  29. Joao Pedro Azevedo, 2004. "GRQREG: Stata module to graph the coefficients of a quantile regression," Statistical Software Components S437001, Boston College Department of Economics, revised 01 Jan 2006. [Downloadable!]
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