Financial effects of open innovation in the manufacturing industry

Abstract

Purpose

The purpose of this paper is to investigate the long-term financial effects of open innovation in the manufacturing industry.

Design/methodology/approach

Drawing upon an open innovation literature, this study examined 671 open innovation announcements made by firms listed on the New York Stock Exchange and National Association of Securities Dealers Automated Quotations during 2003-2012. By employing the event study, the long-term financial performances of the firms that announced open innovation were measured using six dependent performance variables (ROA, ROS, Tobin’s Q, Cost ratio, Sales growth, Asset turnover).

Findings

The results indicate that open innovation in the manufacturing industry may lead to long-term improvements in firm profitability, triggering a positive reaction by stockholders. Open innovation also decreased production costs and increased sales volume over the long run. In all, open innovation was found to be beneficial to the firm in terms of profitability, production process improvement, and market benefits.

Originality/value

This paper is the first longitudinal empirical study to investigate the long-term effects of open innovation in terms of US manufacturing financial performance. It contributes to the body of knowledge by complementing previous open innovation studies, which generally focus on context-specific issues.

Citation

Noh, Y. (2015), "Financial effects of open innovation in the manufacturing industry", Management Decision, Vol. 53 No. 7, pp. 1527-1544. https://doi.org/10.1108/MD-12-2014-0681