Death hurts, but it isn't fatal: the postexit diffusion of knowledge created by innovative companies

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. Both authors contributed equally. The research was partially supported by funds received from the Campus Research Board, University of Illinois. We thank April Franco for access to data. The manuscript has benefited from comments received from Juan Alcacer, MB Sarkar, Charles Williams, Rosemarie Ziedonis, and seminar participants at the 2003 Academy meetings and at the University of Illinois. The usual disclaimer applies. Published: 2005 URL: http://www.business.uiuc.edu/Working_Papers/papers/05−0100.pdf DEATH HURTS, BUT IT ISN’T FATAL: THE POSTEXIT DIFFUSION OF KNOWLEDGE CREATED BY INNOVATIVE COMPANIES GLENN HOETKER College of Business University of Illinois at Urbana-Champaign 350 Wohlers Hall, 1206 S. Sixth Street Champaign, IL 61820 Phone: (217) 265-4081; Fax: (217) 244-7969; E-mail: [email protected] RAJSHREE AGARWAL College of Business University of Illinois at Urbana-Champaign 350 Wohlers Hall, 1206 S. Sixth Street Champaign, IL 61820 Phone: (217) 265-5513; Fax: (217) 244-7969; E-mail: [email protected] Both authors contributed equally. The research was partially supported by funds received from the Campus Research Board, University of Illinois. We thank April Franco for access to data. The manuscript has benefited from comments received from Juan Alcacer, MB Sarkar, Charles Williams, Rosemarie Ziedonis, and seminar participants at the 2003 Academy meetings and at the University of Illinois. The usual disclaimer applies. DEATH HURTS, BUT IT ISN’T FATAL: THE POSTEXIT DIFFUSION OF KNOWLEDGE CREATED BY INNOVATIVE COMPANIES