Does value matter? An examination of the impact of knowledge value on firm performance and the moderating role of knowledge breadth

Abstract

Purpose The purpose of the study is to examine the relationship between the value of created knowledge and financial performance. It also assesses how knowledge breadth moderates the aforementioned relationship. Design/methodology/approach Focusing on the US biotechnology industry, the study matches patents data from the National Bureau of Economic Research and the United States Patent and Trademark Office with firms’ data from COMPUSTAT. Generalized least squares estimation is used as an analytical technique, and random-effects models are used to evaluate effects of the independent variables based on both within- and between-organization variances. Findings The findings reveal that biotechnological firms that create knowledge of higher values are likely to have higher financial performance than those creating knowledge of less value. Moreover, knowledge breadth is shown to positively moderate the relationship between knowledge value and firm performance. Research limitations/implications Some of the limitations include not controlling for more firm-related and environmental factors that might have influenced firm performance. Practical implications The study provides evidence that the quality of knowledge should be significantly considered when creating new knowledge. That is, managers should prioritize the creation of highly valuable knowledge, even if it occasionally results in creating fewer numbers of patents. The paper also suggests that creating valuable knowledge that is broad and flexible should be an important objective for managers as it provides more opportunities to generate future rents. Originality/value The study emphasizes how the value of created knowledge impacts the financial performance of firms. It also illustrates how knowledge breadth moderates that relationship. The paper contributes to a stream of research that links knowledge management abilities and firm performance.