Innovation Search Strategy and Predictable Returns

in Management Science (2021), 67(2), 1109-1137

Because of the intangible and highly uncertain nature of innovation, investors may have difficulty processing information associated with a firm’s innovation search strategy. Due to cognitive and strategic ... [more ▼]

Because of the intangible and highly uncertain nature of innovation, investors may have difficulty processing information associated with a firm’s innovation search strategy. Due to cognitive and strategic biases, investors are likely to pay more attention to unfamiliar explorative patents rather than incremental exploitative patents. We find that innovative firms focusing on exploitation rather than exploration tend to generate superior subsequent short-term operating performance. Analysts do not seem to detect this, as firms currently focused on exploitation tend to outperform the market’s near-term earnings expectations. The stock market also seems unable to accurately incorporate information about a firm’s innovation search strategy. We find that firms with exploitation strategies are undervalued relative to firms with exploration strategies and that this return differ-ential is incremental to standard risk and innovation-based pricing factors examined in the prior literature. This result suggests a more nuanced view on whether stock market pressure hampers innovation, and may have implications for optimal firm financing choices and corporate disclosure policy. [less ▲]

Distributionally Robust Mechanism Design

in Management Science (2020), 66(1), 159--189

Blockchain, Fractional Ownership, and the Future of Creative Work

in Management Science (2020)

Network-Independent Partner Selection and the Evolution of Innovation Networks

in Management Science (2010), 56

Bilateral Collaboration and the Emergence of Networks

in Management Science (2007), 53(7), 1051-1067

In this paper, we model the formation of innovation networks as they emerge from bilateral decisions. In contrast to much of the literature, here firms only consider knowledge production, and not network ... [more ▼]

In this paper, we model the formation of innovation networks as they emerge from bilateral decisions. In contrast to much of the literature, here firms only consider knowledge production, and not network issues, when deciding on partners. Thus, we focus attention on the effects of the knowledge and information regime on network formation. The effectiveness of a bilateral collaboration is determined by cognitive, relational, and structural embeddedness. Innovation results from the recombination of knowledge held by the partners to the collaboration, and its success is determined in part by the extent to which firms’ knowledge complement each other. Previous collaborations (relational embeddedness) increase the probability of a successful collaboration, as does information gained from common third parties (structural embeddedness). Repeated alliance formation creates a network. Two features are central to the innovation process: how firms pool their knowledge resources, and how firms derive information about potential partners. When innovation is decomposable into separate subtasks, networks tend to be dense; when structural embeddedness is important, networks become cliquish. For some regions in this parameter space, small worlds emerge. Key Words: networks; innovation; knowledge; collaborative R&D; embeddedness [less ▲]