Close to competitor? How geographic proximity impacts small firm innovation

Abstract

ABSTRACT While innovation literature has extensively explored geographic proximity, limited attention has been devoted to geographic proximity with competitor. In this study, we build a framework to elucidate how geographic proximity with competitor impacts small firm innovation, based on the theoretical perspectives of the liability of smallness and knowledge spillovers. We propose that geographic proximity with competitor has a U-shaped relationship on R&D intensity and a moderating effect on R&D intensity-small firm innovation relationship. Moreover, we propose that industrial park entry moderates the effect of geographic proximity with competitor on R&D intensity. Based on a sample of 673 firms from the China Micro and Small Enterprise Survey (CMES), our results underscore the relevance of geographic proximity with competitors for small firm innovation. Our study advances existing literature by contextualising geographic proximity within a competitive framework and investigating the role of geographic proximity with competitor across the two stages of small firm innovation.