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Research summary: We replicate one of the first studies on the dynamics of diversification, Chang (1996). Our sample of public and private firms from 1992 to 2001 yields findings similar to the earlier research. Firms tend to enter new markets that have human resource profiles that are similar to the firms' existing businesses, and exit markets that have dissimilar human resource profiles. This general finding is robust to alternative specifications and controls, including the timing of market entry and technological diversification. However, we also find that entry and exit by private firms is much more prevalent than that by public firms. Differences in how public and private firms diversify based on knowledge similarity invite further research in evolutionary economics. Managerial summary: Chang (1996) revealed that large, public manufacturing firms in the 1980s tended to enter new businesses that leveraged the firm's knowledge, some of which is embedded in routines among employees sharing similar occupations. The new businesses provide the basis for further expansion, while a firm divests businesses that do not stay profitable, or which no longer match the firm's new portfolio of businesses. Our data show that these patterns continued in the 1990s. Our sample also includes private firms, which conduct the majority of market entry and exit. Private firms enter new businesses with different proportions of scientific and marketing personnel than their existing operations. Thus, diversification still reflects knowledge resources for smaller, private firms, but differently than for the largest firms in the economy. Copyright © 2016 John Wiley & Sons, Ltd. [ABSTRACT FROM AUTHOR]

The literature on competition through innovation tends to emphasize the benefits of technological leadership. However, we explain why a capable firm might prefer to shadow the technology leader—remaining slightly behind rather than competing directly at the frontier. On the basis of a formal model and the competitive dynamics literature, we propose that the more benefits a firm gains from collaboration with a technological leader through licensing and supply agreements, the more likely the firm is to take a shadowing position. Our hypotheses, particularly regarding licensing from a technological leader, receive support from a large sample in the flat panel display industry. Copyright © 2014 John Wiley & Sons, Ltd.

Resource redeployment may occur when a firm exits from one line of business and enters another. We suggest that when multiproduct firms identify opportunities in new high-growth markets, their entry will occur alongside exit from low-growth markets when the firm is resource-constrained. For our sample of over 47,000 high-tech US firms in CorpTech from 1993 to 2004, 5% of the firm-years include simultaneous entry and exit at the product market level, which we term “product turnover.” Firms are more likely to engage in product turnover when there is a larger spread between the highest and lowest growth rates for the product markets in the firm’s portfolio. This effect is strongest for small- and medium-sized firms, which tend to be privately held. Therefore, future research on resource redeployment might find fruitful ground in samples of mid-size firms.

The Renewable Fuel Standard (RFS) program, which mandates the commercialization of bio-fuels through 2022, is the U.S.’s most significant renewable energy policy. It was first established in 2005 in order to create a viable market for bio-fuels based on the policy goals of enhancing U.S. energy security, reducing transportation-related GHG emissions, and stimulating rural economic development. In this Paper, we provide the first empirical study addressing whether the RFS is an effective policy instrument to incentivize the efficient development of an economically sustainable bio-fuels industry. Our analysis focuses on data associated with the first-generation bio-ethanol industry and suggests that the RFS contributes to increasing production-related economies of scale. More specifically, our empirical findings suggest that the RFS has a positive significant effect on: (1) the survival rate of first-generation bio-ethanol plants; and (2) the production capacity of first-generation bio-ethanol plants.

The U.S. Congress established the Renewable Fuel Standard (RFS) program, which mandates a certain volume of biofuel consumption from 2006-2022, in an effort to enhance U.S. energy security, reduce transportation-related GHG emissions, and stimulate rural economic development. In this Paper, we assess the RFS from the viewpoint of industrial policy and provide the first empirical study addressing whether the RFS is an effective policy instrument to incentivize the development of the nascent biofuels industry. Our analysis focuses on data associated with the first-generation bioethanol industry and suggests that the RFS contributes to increasing economies of scale and improving the competition level among existing firms. More specifically, our empirical analysis suggests that: (1) the RFS has a positive significant effect on the capacity of first-generation bioethanol plants; and (2) the RFS positively affects the survival rate of first-generation bioethanol plants.

The American public realizes the growing scarcity of petroleum and the desirability of the development of alternative fuels. In 2005 and 2007, the U.S. Congress passed laws that aim to promote the consumption of renewable biofuels. The Environmental Protection Agency then designed the Renewable Fuel Standard Program (RFS) that mandates a certain volume of renewable biofuel consumption over the period of 2006-2022. The current policy discussions and analyses regarding the RFS have focused heavily on environmental issues, but we know very little about the U.S. ethanol industry itself. In this study, we examine the potential impact of the RFS on the development process of the U.S. ethanol industry from the viewpoint of industrial policy using ethanol plant-level data. Our analysis suggests that the RFS program contributes to increasing economies of scale and improving competition level among existing firms. The successful development of the U.S. ethanol industry hinges on this factor. The ethanol market is expanding through new plant construction, and the increased competition will let ethanol emerge as a viable fuel alternative to conventional fossil fuel.