Optimal Cognitive Distance and Absorptive Capacity

Abstract

In this paper we test the relation between cognitive distance and innovation performance of firms engaged in technology-based alliances. The key finding is that the hypothesis of an inverted U-shaped effect of cognitive distance on innovation performance of firms is confirmed. Moreover, as expected, we found that the positive effect for firms is much higher when engaging in more radical, exploratory alliances than in more exploitative alliances. The effect of cumulative RD turns out to be mixed. It may increase absorptive capacity, as expected, but there is clear evidence that it also reduces the effect of cognitive distance on novelty value.

Keywords: innovation, inter-firm alliances, cognitive distance, absorptive capacity, exploration and exploitation

JEL Classification: D21, L14, L22, L24, O31, O32