2008/13 | LEM Working Paper Series | |
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Distance to Frontier and Appropriate Business Strategy |
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Alex Coad |
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Keywords | ||
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Distance to frontier, Strategy, Market value, Innovation, Firm Growth
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JEL Classifications | ||
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L25, L21, D21, O31
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Abstract | ||
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This paper is an empirical test of the hypothesis that the
appropriateness of different business strategies is conditional on the
firms distance to the industry frontier. We use data on four
2-digit high-tech manufacturing industries in the US over the period
1972-1999, and apply semi-parametric quantile regressions to
investigate the contribution of firm behavior to market value at
various points of the conditional distribution of Tobin's
q. Among our results, we observe that innovative activity, measured in
terms of R&D expenditure or patents, has a strong positive association
with market value at the upper quantiles (corresponding to the leader
firms) whereas the innovative efforts of laggard firms are valued
significantly less. Laggard firms, we suggest, should instead achieve
productivity growth through efficient exploitation of existing
technologies and imitation of industry leaders. Employment growth in
leader firms is encouraged whereas growth of backward firms is not as
well received on the stock market.
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