Technological Obsolescence

81 Pages Posted: 23 Nov 2021 Last revised: 12 Feb 2022

See all articles by Song Ma

Song Ma

Yale School of Management; National Bureau of Economic Research (NBER)

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Date Written: November 2021

Abstract

This paper proposes a new measure of technological obsolescence using detailed patent data. Using this measure, we present two sets of results. First, firms' technological obsolescence foreshadows substantially lower growth, productivity, and reallocation of capital. This finding applies mainly for obsolescence of core innovation and embodied innovation, and it is stronger in competitive product markets. Second, in stock markets, high-obsolescence firms under-perform low-obsolescence firms by 7 percent annually. Using analyst forecast data, we show this is due to a systematic overestimation of future profits of obsolescent firms. The measure contains incremental information about firm innovation relative to measures focusing on new innovation.

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Suggested Citation

Ma, Song, Technological Obsolescence (November 2021). NBER Working Paper No. w29504, Available at SSRN: https://ssrn.com/abstract=3968727

Song Ma (Contact Author)

Yale School of Management ( email )

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United States

HOME PAGE: http://faculty.som.yale.edu/songma/

National Bureau of Economic Research (NBER) ( email )

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