Essays on technological evolution and financial returns to innovation
Ashish Sood, University of Southern California, United States
University of Southern California . Awarded
Research and Development activity of a firm is the probably the most important source of its intangible value. Numerous studies in the past have demonstrated the failure of failure of leading companies to stay as market leaders when technologies or markets change. But, the evolution of technologies might be quite unpredictable in the short term and even more so in the long term. This stresses the need to develop a better understanding of the phenomenon of technological evolution and radical innovation.
In essay 1, I explore the phenomenon of technological evolution by collecting a rich historical data from a comprehensive examination of the evolution of 23 technologies in six markets from the point of first commercialization till date. The analysis provides rich insights into the patterns of evolution, competitive dynamics and sources of innovation. In essay 2, I use functional analysis to develop techniques that allow us to test hypotheses drawn from theoretical background underlying technological evolution.
Moreover, for the innovation process to be sustainable, it is necessary for firms to derive expected returns from innovative activity. Managers are interested in estimating the marketability of technologically innovative products prior to commercialization. This stresses the need for better measures to assess the impact of firms' strategy regarding innovation.
In essay 3, I examine the stock markets' response to announcements of innovations during the new product development phase of innovation projects. Using the event study method, I examine the market returns to more than 500 announcements of various types of innovations in three industries over a period of more than 25 years. The results indicate that firms may not be able to reap financial benefits of being the first to announce innovative products unless they have a strong track record of technological leadership. In essay 4, I examine short term and long term returns to announcements of technological innovations using techniques in financial analyses. The results indicate that limiting the focus on only new product announcements severely underestimates the total returns to innovation.
Sood, A. Essays on technological evolution and financial returns to innovation. Ph.D. thesis, University of Southern California.
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