Death Hurts, But It Isn't Fatal: The Postexit Diffusion of Knowledge Created by Innovative Companies

Glenn Hoetker and Rajshree Agarwal
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Rajshree Agarwal: U of Illinois at Urbana-Champaign

Working Papers from University of Illinois at Urbana-Champaign, College of Business

Abstract: The innovative knowledge created by firms that ultimately exit their industries represents a source of technology that existing firms may build on. However, no empirical work has examined if such knowledge dies with an innovating firm or if significant diffusion of knowledge occurs even after a firm exits an industry. We base our theoretical predictions about the differing effects of firm exit on private and public knowledge and discuss implications for interfirm knowledge transfer. Using the disk drive industry as our empirical setting, we investigated the main and moderating effects of firm exit on the rate of knowledge diffusion to other firms. Our findings are consistent with prior work highlighting the importance of location and employee mobility in knowledge transfer. We also found evidence that the ability to use a firm as a template plays a critical role in successfully replicating its knowledge. Absent this template, knowledge "stickiness" reduces knowledge diffusion.

Date: 2005
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