Revisiting The Relationship Between Knowledge and Firm Performance: The Role of Technological Diversity and Diversification Strategy

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Keywords: Knowledge Structuration, Firm Performance, Machine Learning, Biopharma

Abstract: This article examines the relationship between the depth and breadth of knowledge on the one hand and the firm performance on the other, revisiting this relationship through the mediating mechanism of technological diversity. By using a Machine Learning algorithm, we empirically distinguish between the technological knowledge possessed by a firm and the technologies it actually uses in operations. We analyze a sample of 204 biopharma companies from 2006 to 2018 and show that the depth and breadth of technological knowledge have a positive impact on a firm’s technology diversity. We then show that the firm’s technology diversity in turn contributes to its financial performance and this relationship is positively moderated by the market diversification strategy of the firm. Our findings contribute to the research body on the relationship between knowledge resources and firm performance, by highlighting that rather than knowledge possessed by a firm, it’s the technologies used by the firm that primarily determine its performance.