Abstract
The role of knowledge, in particular its relatedness to that of the target industry, has often been emphasized as one of the main drivers in firms’ entry decisions. However, empirical analyses seem to show that knowledge relatedness may not always have a positive impact on entry, because the relationship is potentially nonlinear and may vary by entrant type. This study aims to explore these issues by proposing a perspective that may shed light on the mechanisms that govern the relationship between knowledge relatedness and firm entry. It then empirically tests these mechanisms by using a dataset constructed from the Western Electronics Manufacturer Association (WEMA) directory, spanning a time period from 1960 to 1990. The results suggest that the relationship takes an inverted U shape, which however can change drastically depending on the type of entrant.
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