Do peer firms influence innovation?

Machokoto, Michael, Gyimah, Daniel and Ntim, Collins (2021) Do peer firms influence innovation? British Accounting Review, 53 (5), [100988]. (doi:10.1016/j.bar.2021.100988).

Record type: Article

Abstract

Using a large sample of 4,545 US firms over the period 1968–2018, we find robust and significant positive peer effects on corporate innovation. Consistent with the need to keep ahead or abreast of rivals, we document an increase in peer firms’ influence with product market competition. Our further analyses show interesting leader–follower interactions with firms following or adopting innovation policies of counterparts perceived or likely to have superior information. This finding supports the information-based motives of mimicking. More importantly, we show that adopting peers’ innovation policies is associated with improvements in long-term innovation outputs and product market performance. Our results suggest that peer effects are a critical determinant of corporate innovation in addition to other factors examined so far in the literature.

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Accepted_BAR_29_January_2021 - Accepted Manuscript

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Accepted/In Press date: 29 January 2021

e-pub ahead of print date: 8 February 2021

Published date: September 2021

Additional Information: Funding Information: We thank Nathan L. Joseph and Alan Lowe (editors), and two anonymous reviewers for useful comments. We also thank Brian Bolton (PFMC 2018 discussant), participants at the 2018 Paris Financial Management Conference, and seminar participants at the University of Northampton, Coventry University, University of Aberdeen. The authors thank the University of Aberdeen, University of Northampton, and University of Southampton for financial support. Funding Information: We thank Nathan L. Joseph and Alan Lowe (editors), and two anonymous reviewers for useful comments. We also thank Brian Bolton (PFMC 2018 discussant), participants at the 2018 Paris Financial Management Conference, and seminar participants at the University of Northampton, Coventry University, University of Aberdeen. The authors thank the University of Aberdeen , University of Northampton , and University of Southampton for financial support. Publisher Copyright: © 2021 British Accounting Association

Keywords: Heterogeneity effects, Innovation, Peer effects, Product market competition