Distance to Frontier and Appropriate Business Strategy
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.Download Info
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Bibliographic Info
Paper provided by Max Planck Institute of Economics, Evolutionary Economics Group in its series Papers on Economics and Evolution with number 2008-07.Length:
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;Other versions of this item:
- Alex Coad, 2008. "Distance to Frontier and Appropriate Business Strategy," DRUID Working Papers 08-05, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
- Alex Coad, 2008. "Distance to Frontier and Appropriate Business Strategy," LEM Papers Series 2008/13, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- 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; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-07-14 (All new papers)
- NEP-BEC-2008-07-14 (Business Economics)
- NEP-CSE-2008-07-14 (Economics of Strategic Management)
- NEP-EFF-2008-07-14 (Efficiency & Productivity)
- NEP-TID-2008-07-14 (Technology & Industrial Dynamics)
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Verònica Gombau & Agustí Segarra, 2011. "The Innovation and Imitation Dichotomy in Spanish firms: do absorptive capacity and the technological frontier matter?," Working Papers XREAP2011-22, Xarxa de Referència en Economia Aplicada (XREAP), revised Dec 2011.
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