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Do peer firms influence innovation?

Do peer firms influence innovation?
Do peer firms influence innovation?
Using a large sample of 4,545 US firms over the period 1968–2018 (i.e. 51,990 firmyear observations), we examine whether peer firms influence corporate innovation. We find robust and significant positive peer influence on both the decision and the amount of R&D spending. Consistent with the need to keep ahead or abreast of rivals, we find that peer influence on R&D increases with product market competition. There are significant leader–follower interactions with firms adopting the innovation policy of those perceived or likely to have superior information. These findings suggest that information theory is a dominant channel of peer effects. Importantly, adopting peers’ innovation exhibit an inverted-U relationship with firm value, indicating that following rivals’ R&D policy is beneficial up to a threshold for both firm value and performance. Beyond this threshold, peer effects reduce firm value and performance. Overall, we find evidence that peer effects are a critical determinant of corporate innovation in addition to other factors so far considered in the literature.
Heterogeneity effects, Innovation, Peer effects, Product market competition
0890-8389
Machokoto, Michael
c7cbeeb7-34ba-48c9-aa3c-560eb24e97ec
Gyimah, Daniel
260cf797-7dda-4df4-ad01-3424d99197e4
Ntim, Collins
1f344edc-8005-4e96-8972-d56c4dade46b
Machokoto, Michael
c7cbeeb7-34ba-48c9-aa3c-560eb24e97ec
Gyimah, Daniel
260cf797-7dda-4df4-ad01-3424d99197e4
Ntim, Collins
1f344edc-8005-4e96-8972-d56c4dade46b

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 (i.e. 51,990 firmyear observations), we examine whether peer firms influence corporate innovation. We find robust and significant positive peer influence on both the decision and the amount of R&D spending. Consistent with the need to keep ahead or abreast of rivals, we find that peer influence on R&D increases with product market competition. There are significant leader–follower interactions with firms adopting the innovation policy of those perceived or likely to have superior information. These findings suggest that information theory is a dominant channel of peer effects. Importantly, adopting peers’ innovation exhibit an inverted-U relationship with firm value, indicating that following rivals’ R&D policy is beneficial up to a threshold for both firm value and performance. Beyond this threshold, peer effects reduce firm value and performance. Overall, we find evidence that peer effects are a critical determinant of corporate innovation in addition to other factors so far considered 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
Keywords: Heterogeneity effects, Innovation, Peer effects, Product market competition

Identifiers

Local EPrints ID: 446268
URI: http://eprints.soton.ac.uk/id/eprint/446268
ISSN: 0890-8389
PURE UUID: 3243cab2-086f-49a5-bb73-bc3f0c99281d
ORCID for Collins Ntim: ORCID iD orcid.org/0000-0002-1042-4056

Catalogue record

Date deposited: 02 Feb 2021 17:52
Last modified: 08 Oct 2021 01:27

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Contributors

Author: Michael Machokoto
Author: Daniel Gyimah
Author: Collins Ntim ORCID iD

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