Firm heterogeneity, innovation and valure capture: three essays

Tae, C J (2013) Firm heterogeneity, innovation and valure capture: three essays. Doctoral thesis, University of London: London Business School.

Abstract

The underlying theme of my thesis is the role of firm capabilities and heterogeneity. Through the following three papers, I examine the role of firm heterogeneity on value migration in a sector, the financial value of innovation, and the propensity and timing of innovation adoption. The first paper, a joint work with my advisor, considers how firm capabilities can change the industry architecture dynamics by looking at value migration, using the computer sector as an illustration. We find that the traditional industrial organization?s driver of profit does not account for value migration, but show instead that kingpins with superior capabilities turn their segments into a 'bottleneck' and induce value migration. Although a kingpin exerts positive externalities on its peers in the short run, the inequality between a kingpin and its peers worsens over time. My second paper looks at how firm heterogeneity affects the value of innovation. Specifically, I consider the way firm heterogeneity affects who financially benefits from innovation. The inspiration for the work comes from the financial crisis 2007-2008 during which many financial institutions underwent the unanticipated consequences of innovation and suffered financially. I find that operational capabilities, types of past exploration experience, and firm scope affect whether or not a firm can unlock the value from innovation as well as to benefit the overall firm performance. My third paper considers how different aspects of past performance, borne out of inherent firm heterogeneity, affect adoption of innovation. I investigate the effect of feedback, possession of dynamic capabilities, and changes in external environment on whether or not, and how fast, a firm adopts innovation. I argue that firms rely more on one source of feedback than the others depending on the external environment and that this various aspects of past performance also affect the timing of adoption. I elaborate this argument with the behavioral theory of the firm and the concept of dynamic capabilities and test it on a longitudinal data on adoption of credit default swaps by the US banks.