Age of U.S. public firms, proximity to the past patent portfolio, and innovation

Abstract

Previous studies have documented that firm age has a negative effect on innovation. While firm rigidity has been thought to explain this negative effect of age, it has not been measured empirically. Using the USPTO patent database, this study empirically unpacks the black box of firm age effects on innovation among U.S. public firms. We empirically measure the degree of reconfiguration in firms’ patent portfolio proximity. Our findings reveal the mediating role of rigidity in terms of adhering to the same technological focus in shaping the relationship between firm age and innovation. Furthermore, we highlight a trade-off between invention quality and quantity. Specifically, the greater patent portfolio proximity to firms’ own past is associated with diminished invention quality, albeit an increase in invention outputs. The empirical results provide a managerial implication that a sustained focus on the same technological area leads to diminished invention quality. As firms age, altering the R&D focus emerges as a crucial strategic priority, enabling them to produce higher-quality innovation outcomes.