FIRM-SPECIFIC RISK, GROWTH OPTIONS, AND INNOVATION RENT

Chandra S. Mishra ()
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Chandra S. Mishra: College of Business, Florida Atlantic University, Boca Raton, FL 33431, USA

International Journal of Innovation Management (ijim), 2023, vol. 27, issue 07n08, 1-35

Abstract: The greater the firm-specific risk, the more valuable are the innovative opportunities underlying the growth options, and the greater the innovation rent. We examine whether firm-specific risk drives the firm’s innovation rent. We find that the firm-specific risk positively moderates the association between firm innovativeness and firm surplus. Innovation rent is the change in firm surplus per unit change in the knowledge capital (accumulated R&D stock). The firm surplus is the excess market value of the firm over shareholder expectations. We further examine whether the growth options embedded in the firm’s assets mediate the association between firm innovativeness and firm surplus. Growth options positively mediate the association between knowledge capital and firm surplus. The firm-specific risk enhances the value of innovative opportunities underlying the firm’s growth options that are exercised such that the firm earns a value surplus. Our results are consistent with the strategic rent model and emerging behavioural theory.

Keywords: Innovation rent; growth options; firm-specific risk; firm surplus; behavioural theory (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1142/S1363919623500354

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