As part of the series of the „Finance Research Seminar“, VGSF welcomes Nicolas Crouzet from Northwestern University, Kellogg School of Management to present his research paper.
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Paper
Why Don’t Old Firms Do New Things?
Since at least Schumpeter (1942), new firms have been widely viewed as the driving force for implementing new technologies. Yet limited economics research explains when and why new technologies require new firms. We examine the view that old firms struggle especially when new technologies lead to different organizational workstyles (based on occupation composition and their corresponding workstyles), which may clash with their existing business model. In the data, young firms grow significantly faster than old firms when new technologies in an industry generate greater workstyle changes (due to the types of workers they require), whereas the advantage of young firms is not related to the sheer volume of new technologies (e.g., the number of all or important patents). We also find that new technologies associated with greater workstyle changes are more likely to be implemented by young firms, as measured using AI assessment of Wikipedia articles. These results highlight the role of organizational frictions in shaping companies’ adaptability, and provide new perspectives for the Coase (1937) boundary of the firm question. Investment in entrepreneurship is especially important when innovations alter organizational workstyles.
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