Distance to Frontier and Appropriate Business Strategy

This paper is an empirical test of the hypothesis that the appropriateness of differentbusiness strategies is conditional on the firm’s distance to the industry frontier. We usedata on four 2-digit high-tech manufacturing industries in the US over the period 1972-1999, and apply semi-parametric quantile regressions to investigate the contribution offirm behavior to market value at various points of the conditional distribution of Tobin’sq. Among our results, we observe that innovative activity, measured in terms of R&Dexpenditure or patents, has a strong positive association with market value at the upperquantiles (corresponding to the leader firms) whereas the innovative efforts of laggardfirms are valued significantly less. Laggard firms, we suggest, should instead achieveproductivity growth through efficient exploitation of existing technologies and imitationof industry leaders. Employment growth in leader firms is encouraged whereas growthof backward firms is not as well received on the stock market...