TY - GEN

T1 - Disentangling the Relationship between Business Model Innovation and Financial Performance

AU - Esau, Eduard

AU - Jung, Christopher

AU - Schäper, Thomas

PY - 2021/8/1

Y1 - 2021/8/1

N2 - This study seeks to provide new insights into the relationship between a firm`s business model innovation (BMI) intensity and its financial performance over time. By adopting an institutional perspective, we hypothesize a non-linear relationship suggesting that a moderate BMI intensity is most beneficial as firms need to balance the tension between generating legitimacy while increasing their competitiveness. Moreover, we argue that the legitimacy threshold is contingent on the industrial environment since it could vary across different characteristics, particularly the average industry BMI and industry growth. To test the hypotheses, we draw on a machine-learning approach for text mining, analyzing 10-K annual reports from publicly listed U.S. firms between 1994 and 2018 to create a text-based measure of BMI intensity, and merged it with archival data. The firm fixed-effects regression analyses of 47,026 firm-year observations indicate that the relationship between BMI intensity and financial performance is S-shaped. In detail, performance decreases for low levels, increases for moderate levels, and decreases for high levels. We further demonstrate that the average industry BMI intensity positively, and industry growth negatively moderates the S-Shaped relationship. Our study contributes to both a better understanding of the BMI-performance relationship across different intensity levels and conditions as well as to the growing body of research at the intersection of institutional theory and strategic management examining the tensions between legitimacy and differentiation.

AB - This study seeks to provide new insights into the relationship between a firm`s business model innovation (BMI) intensity and its financial performance over time. By adopting an institutional perspective, we hypothesize a non-linear relationship suggesting that a moderate BMI intensity is most beneficial as firms need to balance the tension between generating legitimacy while increasing their competitiveness. Moreover, we argue that the legitimacy threshold is contingent on the industrial environment since it could vary across different characteristics, particularly the average industry BMI and industry growth. To test the hypotheses, we draw on a machine-learning approach for text mining, analyzing 10-K annual reports from publicly listed U.S. firms between 1994 and 2018 to create a text-based measure of BMI intensity, and merged it with archival data. The firm fixed-effects regression analyses of 47,026 firm-year observations indicate that the relationship between BMI intensity and financial performance is S-shaped. In detail, performance decreases for low levels, increases for moderate levels, and decreases for high levels. We further demonstrate that the average industry BMI intensity positively, and industry growth negatively moderates the S-Shaped relationship. Our study contributes to both a better understanding of the BMI-performance relationship across different intensity levels and conditions as well as to the growing body of research at the intersection of institutional theory and strategic management examining the tensions between legitimacy and differentiation.

UR - http://www.scopus.com/inward/record.url?scp=85123503543&partnerID=8YFLogxK

U2 - 10.5465/AMBPP.2021.149

DO - 10.5465/AMBPP.2021.149

M3 - Conference contribution

AN - SCOPUS:85123503543

T3 - Academy of Management Proceedings

BT - Academy of Management Annual Meeting

PB - Academy of Management

T2 - 81st Annual Meeting of the Academy of Management 2021: Bringing the Manager Back in Management, AoM 2021

Y2 - 29 July 2021 through 4 August 2021

ER -