Seminar (Dept. of Accounting)

Theme：Do Major Customers Help or Hurt Innovation? The Effects of Customer-Base Concentration on Radical and Incremental Innovation

Speaker：Wei Jiang, Professor, Renmin University of China

Time：2021-05-26 10:00

Address：Room 1008, Mingde Business Building

Language：Chinese

ABSTRACT:

We examine the effect of a firm’s customer-base concentration on two types of firm innovation: radical innovation (i.e., a revolutionizing breakthrough from existing technology) versus incremental innovation (i.e., minor improvements to existing practices). Drawing on theories of resource dependence and resource allocation, we predict that dependence on major customers will lead a firm to make less investment in radical innovation and more investment in incremental innovation. We test our hypotheses with a sample of 11,940 firm-year observations between 1984 and 2010. Consistent with our predictions, we find that customer concentration is positively associated with incremental innovation, and such association is more pronounced for firms with high investment irreversibility. Although we do not find a main effect of customer concentration on radical innovation, we find an interaction effect between customer concentration and investment irreversibility such that radical innovation is significantly lower in firms with high customer concentration and high investment irreversibility than in other firms. Our results suggest that innovation resource allocation decisions of firms with high customer concentration may be shaped by major customers.