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The financial implications of open innovation: Evidence from stock market reactions to public companies' open source software releases

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  • Yang, Wei

Abstract

Open source has become an increasingly important strategy in many technology-intensive industries, including the financial sector. Yet, because open source makes technology and knowledge available for free, it runs counter to well-established theories that emphasize the need for appropriability and knowledge control to profit from innovation, thereby creating challenges for assessing its financial implications. Against this backdrop, this study examines how financial investors react to public companies' open-source innovation. Drawing on the literatures on open source, technology ecosystems, and the interplay between financial markets and firm strategy, I propose that a company's open-source innovation release is associated with a positive stock-market reaction. I further propose that investors' positive reactions increase with the company's proprietary innovation, because proprietary innovation allows more value created from the open source innovation to be retained within the firm through appropriability regime, while enhancing the inimitability of the interdependent ecosystem enabled by open source. Moreover, the effect of proprietary innovation is stronger when the company incorporates pre-existing open-source modules into the technological architecture of the released technology. Those hypotheses are supported by the empirical analysis based on 2693 open-source software releases by 108 public firms from 2012 to 2020. Event-study analysis also reveals an average cumulative abnormal return of 0.37% associated with a company's release of open source innovation. In addition, exploratory evidence suggests that greater knowledge reliance on open-source contributors of the company dampens the effect of proprietary innovation on stock-market reactions, although identification challenges limit causal interpretation of this pattern. I conclude by discussing implications for understanding open source and the co-evolution of financial and technological innovation.

Suggested Citation

  • Yang, Wei, 2026. "The financial implications of open innovation: Evidence from stock market reactions to public companies' open source software releases," Research Policy, Elsevier, vol. 55(7).
    • Handle: RePEc:eee:respol:v:55:y:2026:i:7:s0048733326000910
    DOI: 10.1016/j.respol.2026.105500
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