Article ID Journal Published Year Pages File Type
7356761 Journal of Banking & Finance 2018 40 Pages PDF
Abstract
This paper proposes a novel channel through which innovation externalities can affect firm performance. I find cross-sectional evidence that the positive innovation outputs of customer firms increase their supplier profitability as measured by firm ROE. This result is robust to the inclusion of industry fixed effect, a control for both supplier and customer characteristics, such as ROE, advertisement expenditure, capital expenditure, firm age, industry concentration, institutional ownership, dividend yield, and a control for industry spillover or geographical spillover. To identify the causal effect of customer innovation outputs on supplier performance, I study an exogenous shock-State Street Bank and Trust Company v. Signature Financial Group, Inc.-and find that an increase in granted customer patents causes an improvement in future supplier performance. This effect is mainly driven by the demand channel and the knowledge diffusion channel from customers to suppliers.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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