Research on innovation suggests a number of firm characteristics that would affect the degree of innovation. For example, large firms are more capable of taking on the risk associated with more distant innovation. We measure the size of a operations using Log of Total Assets firm’s and Managers facing more complex decision environments tend to limit the scope of Log of Sales. their searching and innovation closer to their core competency. To capture this characteristic we consider the number of business segments within the firm (Number and the of Business Segments) Herfindahl-Hirschman index (HHI) of business segment sales (HHI In of Business Segments). addition we also evaluated and as Number of Geographic Segments HHI of Geographic Segments proxies for organizational complexity. The results were qualitatively similar to those reported here (details are available upon request). The number of business segments captures the sheer number of moving parts in the organization. The HHI of business segment sales allows us to discriminate whether a decision maker faces a large number of equal-size segments or a dominant segment that demands most of the decision-maker’s We posit that the former leads to a more complex attention. decision because the attention will be split between business segments, leading to manager’s significant interactions when making decisions. The latter is not as complex because the decision maker can focus attention on one segment. Following this intuition we augment the set of proxies for organizational complexity with the Here we consider the distribution of a existing patents across HHI of Patent Portfolio. firm’s technological classes as of the end of . If a firm is engaged in a wide variety of patenting activities the managerial decision to finance further innovation becomes more complex. Alongside the core variables of interest that capture financial distress and organizational characteristics such as complexity, we control for a variety of factors that might affect a firm’s decision regarding the riskiness of their innovation. Specifically we control for the following
Research on innovation suggests a number of firm characteristics that would affect the degree of innovation. For example, large firms are more capable of taking on the risk associated with more distant innovation. We measure the size of a firm’s operations using Log of Total Assets and Log of Sales. Managers facing more complex decision environments tend to limit the scope of their searching and innovation closer to their core competency. To capture this characteristic we consider the number of business segments within the firm (Number of Business Segments) and the Herfindahl-Hirschman index (HHI) of business segment sales (HHI of Business Segments). In addition we also evaluated Number of Geographic Segments and HHI of Geographic Segments as proxies for organizational complexity. The results were qualitatively similar to those reported here (details are available upon request). The number of business segments captures the sheer number of moving parts in the organization. The HHI of business segment sales allows us to discriminate whether a decision maker faces a large number of equal-size segments or a dominant segment that demands most of the decision-maker’s attention. We posit that the former leads to a more complex decision because the manager’s attention will be split between business segments, leading to significant interactions when making decisions. The latter is not as complex because the decision maker can focus attention on one segment. Following this intuition we augment the set of proxies for organizational complexity with the HHI of Patent Portfolio. Here we consider the distribution of a firm’s existing patents across technological classes as of the end of . If a firm is engaged in a wide variety of patenting activities the managerial decision to finance further innovation becomes more complex. Alongside the core variables of interest that capture financial distress and organizational characteristics such as complexity, we control for a variety of factors that might affect a firm’s decision regarding the riskiness of their innovation. Specifically we control for the following