Measuring Industry Relatedness and Corporate Coherence

Abstract

Since the seminal work of Teece et al. (1994) firm diversification has been found to be a non-random process. The hidden deterministic nature of the diversification patterns is usually detected comparing expected (under a null hypothesys) and actual values of some statistics. Nevertheless the standard approach presents two big drawbacks, leaving unanswered several issues. First, using the observed value of a statistics provides noisy and nonhomogeneous estimates and second, the expected values are computed in a specific and privileged null hypothesis that implies spurious random effects. We show that using Monte Carlo p-scores as measure of relatedness provides cleaner and homogeneous estimates. Using the NBER database on corporate patents we investigate the effect of assuming different null hypotheses, from the less unconstrained to the fully constrained, revealing that new features in firm diversification patterns can be catched if random artifacts are ruled out.JEL codes: C1, D2, L2

High-growth firms and technological knowledge: do gazelles follow exploration or exploitation strategies?

“…In particular it may be worth analyzing such relationships by portioning the sample according to different definitions of the quartiles. Moreover, the kinds of empirical implementation of knowledge coherence like the one used in this paper has been recently criticized by Bottazzi and Pirino (2010), and it would be interesting to try the corrected index they suggest to check if our results still hold. Moreover, it would also be interesting to further check for the robustness of the results, by implementing different estimators, accounting for the distribution of explanatory variables as well as for the impact of outliers.…”

“…All these variables, which will be introduced better explained in what follows and in appendix A, are calculated for firm i at time t. Following previous empirical works (Bottazzi et al, 2010;Coad, 2011), the growth rates distributions have been normalized around zero in each year by removing means as follows:…”

What do firms know? What do they produce? A new look at the relationship between patenting profiles and patterns of product diversification

“…We adopt a "survivor" measure of relatedness which has been proposed by Teece et al (1994) and then widely used in the literature, with reference both to industrial sectors and products (Piscitello, 2000(Piscitello, , 2004Valvano and Vannoni, 2003) and to patent classes (Breschi et al, 2003;Nesta and Saviotti, 2006;Bottazzi and Pirino, 2010).…”

“…Patel and Pavitt (1997), who focus instead on the technological knowledge, report an analogous finding of path dependency in the accumulation of firm-specific technological competencies. Several studies have further contributed to support the relatedness hypothesis (Breschi et al, 2003;Valvano and Vannoni, 2003;Nesta and Saviotti, 2006;Bottazzi and Pirino, 2010). And more recent work of Piscitello (2000Piscitello ( , 2004; Miller (2006) started to investigate the relation between the diversification pattern followed by firms and corporate performance, finding a positive relation between corporate coherence and firm performance.…”

“…Using a refined version of the Teece et al (1994) measure of corporate coherence, developed in Bottazzi and Pirino (2010), we find that as firms introduce new products and develop new technologies, the coherence between neighboring activities is high for relatively low levels of diversification, but remain present also for sufficiently diversified firms.…”