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
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
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