Going Revolutionary: The Impact of 4IR Technology Development on Firm Performance

Abstract

Drawing on the knowledge-based view of the firm, we investigate whether firm performance is related to the accumulated stock of technological knowledge associated with the Fourth Industrial Revolution (4IR), and what contextual factors affect this relationship. We test our research questions on a longitudinal matched patent-firm data set on large firms filing 4IR patents at the European Patent Office (EPO). Our results, which control for a large number of patent- and firm-level variables as well as firm fixed unobserved heterogeneity, show a significant and economically relevant positive association between the development of 4IR technologies and firm productivity. However, no significant relationship with firm profitability is detected, thereby suggesting that the returns from 4IR technological developments are slow to cash in. We also find that late innovators benefit more from the development of 4IR technological capabilities than early innovators and experience a substantial “boost effect”. We provide empirical support to an explanation of these findings in terms of the ability of late innovators to (i) manage the inherent complexity of the bundle of technologies comprising the 4IR and (ii) exploit profitable downstream applications of the 4IR.