Technological Diversification and Market Performance — Evidence from Taiwan’s Electronics Industry

This paper examines the relationship between technological diversification and market performance by analysing patent data from listed Taiwanese electronics companies from 1990-2008. We fit each patent into a 35-field technology classification to calculate a newly constructed diversity index for the firm. After controlling for effects of firm size and firm age, we confirm a positive role of technological diversification on the firm’s market performance as measured by sales, gross profit, and the ratio between sales and employment. This paper suggests technological diversification rather than technological specification as the innovation strategy. By combining related and unrelated knowledge fields, firms could be inspired with new ideas in product innovation or process innovation.