How the Threat of Knowledge Loss Drives Firms’ R&D Dynamism: A Threat Rigidity Perspective

Abstract

Drawing on threat rigidity theory, this paper argues that the threat of knowledge loss gives rise to a threat rigidity effect in firms’ R&D function, that is, reduces their R&D dynamism. It further argues that the dampening of R&D dynamism is greater for firms more vulnerable to the threat of knowledge loss due to facing greater product market competition, yet lower for firms that can better respond to the threat due to having relatively higher absorptive capacity and/or greater financial slack. Using a sample of publicly listed US manufacturing firms tracked over a 15-year observation period from 1991 to 2015 and leveraging the quasi-natural experiment created by the staggered rejection of the inevitable disclosure doctrine (IDD) across fourteen US states, it empirically tests and finds support for the above hypotheses.