(Disruptive) innovations and rival firm outcomes
39 Pages Posted: 4 Mar 2020 Last revised: 24 May 2021
Date Written: May 21, 2021
We show empirically that disruptive innovations significantly reduce rival firm growth and value in concentrated industries, consistent with the creative destruction hypothesis. Because these innovations make existing technologies obsolete, corporate investments and the amount of external financing to fund these investments also decrease. Disruptive innovations curb market power, thereby CEO compensation and CEO power also decline in affected firms. Overall, we show that disruptive innovation is a fierce force that intensifies competition, disciplines managers of rival firms, and strengthens business dynamism in the USA.
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