Does own innovation or creative destruction matter more for resource reallocation in competitive industries?

50 Pages Posted: 18 Feb 2021 Last revised: 11 Mar 2024

See all articles by Xi Li

Xi Li

University of Arkansas - Department of Finance

Chi Zhang

University of Massachusetts Lowell

Date Written: December 8, 2022

Abstract

We find that the positive impact of a firm’ own innovations on its own growth is similar in more and less competitive industries. In contrast, the negative impact of rival firms’ innovations on a firm’s growth (creative destruction) is significantly stronger in less competitive industries, especially for firms with less independent existing board. Creative destruction improves subsequent board independence and interrupts managers’ quiet life more in less competitive industries. Difference-in-differences tests using major tariff cuts show that our results are unlikely due to endogeneity. Overall, creative destruction, but not own innovation, improves resource reallocation under less competition. Our results are consistent with competition producing more innovations with more creative destruction but not own innovation.

Keywords: Product market competition, technology innovation, creative destruction, resource allocation, growth

JEL Classification: G14, O3, O4, L1, L2

Suggested Citation

Li, Xi and Zhang, Chi, Does own innovation or creative destruction matter more for resource reallocation in competitive industries? (December 8, 2022). Available at SSRN: https://ssrn.com/abstract=3785517 or http://dx.doi.org/10.2139/ssrn.3785517

Xi Li

University of Arkansas - Department of Finance ( email )

Fayetteville, AR 72701
United States

Chi Zhang (Contact Author)

University of Massachusetts Lowell ( email )

Pulichino Tong Building
Manning School of Business
Lowell, MA 01854
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
104
Abstract Views
623
Rank
466,484
PlumX Metrics