A Bag of Beads or a Necklace? Combinative Capability and Value in Technological Scope Expansions

33 Pages Posted: 3 Feb 2010 Last revised: 4 Sep 2012

See all articles by Jeongsik Lee

Jeongsik Lee

Drexel University - LeBow College of Business

Natarajan Balasubramanian

Syracuse University - Whitman School of Management

Date Written: February 3, 2010

Abstract

We study the relation between a firm’s combinative capability and value creation in the context of technological scope expansion. On a sample of Compustat firms that applied for U.S. patents between 1980 and 2001, we find that firm value, measured using Tobin’s q, decreases with increases in technological scope (measured as the number of unique patent classes). However, when firms expand by combining different classes into a single patent, we find that this negative effect is significantly diminished. These findings indicate that increasing technological scope likely creates value only when the firm is able to integrate the components into a single technology; simply maintaining different technological components within the firm boundary without integration appears to subject the firm to a discount.

Suggested Citation

Lee, Jeongsik and Balasubramanian, Natarajan, A Bag of Beads or a Necklace? Combinative Capability and Value in Technological Scope Expansions (February 3, 2010). Atlanta Competitive Advantage Conference 2010 Paper. Available at SSRN: https://ssrn.com/abstract=1547161 or http://dx.doi.org/10.2139/ssrn.1547161

Jeongsik Lee

Drexel University - LeBow College of Business ( email )

3141 Chestnut Street
Philadelphia, PA 19104
United States

Natarajan Balasubramanian (Contact Author)

Syracuse University - Whitman School of Management ( email )

United States

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