Internal Sequential Innovations and Market Value
39 Pages Posted: 20 Jan 2008
Date Written: January 18, 2008
Research shows that innovations contribute to a firm's performance such as market value. However, research is less specific concerning how innovations contribute to market value. Simplistic assumptions are often made such as additivity, which assumes that the bundle of innovations can be additively separated into individual innovations. We identify some important interrelationships among innovations by drawing upon evolutionary economics and focusing on how the underlying technological trajectories drive the evolution of innovations. We suggest that some innovations are internal sequential innovations, which share the genealogical linkage from the same underlying technological trajectory. We further suggest that internal sequential innovations contribute significantly to a firm's market value from three dimensions - the depth, coverage, and learning dimensions. Specifically, we show that for public corporations in four innovation-intensive industries from 1980 to 1994, the depth and coverage contribute positively to the market value. In addition, the learning dimension, or how long the sequential relationships among innovations have existed, has an inverted-U relationship with the market value.
Keywords: evolutionary economics, innovation, interrelatedness
JEL Classification: O32, O34
Suggested Citation: Suggested Citation