Knowledge-Intensive Business Service Firms’ Knowledge Externalities and Appropriability in Innovation Performance

Abstract

We revisit the literature on the “paradox of knowledge externalities,” which encompasses two conflicting views regarding a firm’s innovation collaboration and spillover prevention. Drawing on original survey data from 300 Taiwanese knowledge-intensive business service (KIBS) firms, we explore the extent to which KIBS firms’ behavioral elements in innovation collaboration (i.e., interactive knowledge search and noninteractive knowledge search) and unwanted spillovers prevention (i.e., formal and informal appropriability) affect their innovation performance. Specifically, we predict that KIBS firm’s interactive knowledge search exhibits a U-shaped relationship with innovation performance, whereas KIBS’s noninteractive knowledge search exhibits an inverted U-shaped relationship with innovation performance. These curvilinear relationships are contingent on whether the KIBS firm employs formal and informal appropriability that consider distinct aspects of innovation protection and value appropriation during its knowledge search. By reconciling the conflicting views in the existing literature, we provide a nuanced framework for understanding the extent to which KIBS firms strategically manage knowledge externalities to secure private benefits. Finally, we conclude with theoretical and managerial implications that underscore the critical role of managing knowledge externalities to maximize privately-owned innovation performance in KIBS firms.