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Innovate to Survive: The Effect of Technology Competition on Corporate Bankruptcy
Author(s) -
Eisdorfer Assaf,
Hsu PoHsuan
Publication year - 2011
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/j.1755-053x.2011.01172.x
Subject(s) - bankruptcy , earnings , competition (biology) , business , stock (firearms) , financial distress , bankruptcy prediction , industrial organization , monetary economics , accounting , economics , financial system , finance , mechanical engineering , ecology , engineering , biology
This paper establishes a strong relation between technology competition and corporate bankruptcy. Using detailed firm‐level patent data, we show that: 1) the capability of firms to innovate predicts future bankruptcies better than the typical measures such as Z‐score and credit rating, 2) technology‐related bankruptcies are less sensitive to the business cycle and industry success, and 3) firms that go bankrupt as a result of technology competition experience larger declines in earnings and stock prices.