Disentangling the Relationship between Business Model Innovation and Financial Performance

authored by: Eduard Esau, Christopher Jung, Thomas Schäper
Abstract: 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.
Organisation(s): Institute of Human Resource Management and Organizational Behavior
External Organisation(s): University of Münster
Type: Conference contribution
Publication date: 01.08.2021
Publication status: Published
Peer reviewed: Yes
ASJC Scopus subject areas: Industrial relations, Management Information Systems, Management of Technology and Innovation
Sustainable Development Goals: SDG 9 - Industry, Innovation, and Infrastructure
Electronic version(s): https://doi.org/10.5465/AMBPP.2021.149 (Access: Closed)