Strategic Management Journal

Strat. Mgmt. J., 35: 1144–1163 (2014)

Published online EarlyView 4 September 2013 in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2150
Received 29 June 2011 ; Final revision received 20 May 2013

THE RELATIONSHIP BETWEEN KNOWLEDGE

SOURCING AND FEAR OF IMITATION
MARCO S. GIARRATANA1 and MYRIAM MARIANI2*
1
Department of Management and Technology, Bocconi University, Milano, Italy
2
Department of Policy Analysis and Public Management, Bocconi University,
Milano, Italy

When firms tap external knowledge sources, they risk spillovers of their own internal knowledge.
If the value of this potential loss and the imitation capabilities of neighboring organizations
are high, fear of imitation might overshadow the benefits of openness. In such situations, firms
might voluntarily reduce their use of external sources, relative to knowledge available internally.
Data pertaining to 4,623 European inventions and direct information about the use of knowledge
sources confirm that firms reduce their use of external, relative to internal, knowledge when they
conduct costly research projects in locations characterized by high levels of absorptive capacity
in a specific technology. This study also reveals fear of imitation as a mediating factor of this
behavior. Copyright © 2013 John Wiley & Sons, Ltd.

INTRODUCTION Several studies examine the implications of

A firm’s inventive success depends on more than
internal knowledge, it also requires the ability to
acquire and combine knowledge from external
sources (Capron and Mitchell, 2009; Chesbrough,
2003; Parmigiani and Mitchell, 2009; Rosenkopf
and Nerkar, 2001). Innovation literature highlights
the merits of integrating external knowledge with
internal competencies (Arora and Gambardella,
1990; Chesbrough, 2003; Helfat and Quinn,
2006). Yet the use of external knowledge gener-
ates more than just benefits (Laursen and Salter,
2006). Because knowledge absorption often
occurs through personal interactions and bilateral
exchanges of information, internal knowledge can
spill over to potential imitators, which generates
imitation threats and appropriability concerns.
Keywords: knowledge sources; fear of imitation; innova-
tion activities; firm strategy; entrenchment behavior
*Correspondence to: Myriam Mariani, Department of Policy
Analysis and Public Management, Bocconi University, Via
Roentgen 1, 20136, Milano, Italy. E-mail: myriam.mariani@
unibocconi.it
fear of imitation in terms of firms’ behaviors
and incentives to innovate (e.g., Liebeskind,
1996). Fear of imitation can affect, for example,
the decision to develop collaborative research
agreements (Cassiman and Veugelers, 2002; Oxley
and Sampson, 2004) or the design of policies to
deal with employee mobility (Agarwal, Ganco,
and Ziedonis, 2009), such as trade secret laws or
noncompete covenants in employment contracts
(Gilson, 1999). International business studies con-
sider how multinational firms react to imitation
threats by choosing the locations of their sub-
sidiaries strategically, either in regional clusters or
distant from other firms, depending on the munifi-
cence and relative strengths of the firms’ resources
(Forman, Goldfarb, and Greenstein, 2008; Shaver
and Flyer, 2000). Multinational firms can also
decide the type of R&D activity to conduct in
specific locations to trade off maximal local
knowledge absorption against their need to reduce
outward leakages of information (Alcacer, 2006;
Alcacer and Chung, 2007; Frost, 2001). Using
information at the patent family level, Alcacer and

Copyright © 2013 John Wiley & Sons, Ltd.

 Fear of Imitation and Knowledge Sourcing
Zhao (2012) show that multinational companies in
the semiconductor industry use internal teams of
researchers, spread across subsidiaries, to internal-
ize R&D activity and bar imitation. Yet most firms
are not multinational companies with multiple sub-
sidiaries located in different regions and countries,
which means they cannot adopt such maneuvers
easily. In addition, even for multinational com-
panies, the share of R&D subsidiaries among
total foreign units is only about 10 percent, which
implies that location choice is not a common
strategy to limit the fear of imitation (Feinberg
and Gupta, 2004; Hegde and Hicks, 2008).
This article borrows from prior work the idea
that firms might internalize R&D activities when
they fear imitation (Alcacer and Zhao, 2012),
but it moves the unit of analysis beyond the
firm, to investigate their unique innovations. We
posit that costly R&D investments in a particular
innovation, combined with a location in a region
populated by organizations with high absorptive
capacity, unleashes a fear of imitation, such that
firms resort more to internal and less to external
knowledge sources. An empirical analysis with
data derived from 4,623 patented innovations,
drawn from a survey conducted among European
inventors during May 2003–January 2004 (Giuri
et al., 2007) and complemented by data about
firms and locations, supports this prediction. In
addition, using information provided directly by
the inventors, we offer empirical evidence that fear
of imitation mediates entrenchment behavior.
With this investigation, we therefore make
the following contributions. At a microlevel, we
apply theoretical mechanisms derived from recent
advances related to the trade-offs that firms make
between R&D protection and openness (e.g.,
Alcacer and Chung, 2007). We test empirically
how firms vary in the degree to which they
internalize their R&D activities, depending on the
size of their R&D investment and location charac-
teristics. Although the claim that imitation threats
drive R&D internalization certainly is not new
(Liebeskind, 1996), our study offers novel, empir-
ical evidence at the invention level, consistent
with the actual emergence of such threats.
In the next section, we propose background
arguments to ground our research question, fol-
lowed by a description of the data and empirical
model. We then provide the estimated results and
empirical evidence about the role of fear of imita-
tion. Finally, we outline our conclusions.
Copyright © 2013 John Wiley & Sons, Ltd.
1145
THEORETICAL BACKGROUND
Starting with Teece (1986), innovation scholars
have long investigated how firms can appropriate
returns from their R&D investments. In a sys-
tematic approach, Liebeskind (1996) suggests an
array of instruments that firms use before, dur-
ing, or after their R&D activities to create pos-
session rights, in the form of formal propriety
rights or organization-specific assets and strategies.
Clarkson and Toh (2010) and Alcacer and Zhao
(2012) focus on the means that firms use to protect
their innovative knowledge during R&D activities,
including secrecy and complex intraorganizational
interdependences. We build on these arguments,
as well as the idea that when they consider knowl-
edge protection tactics during their R&D activity,
firms might try to protect their valuable knowl-
edge by strategically choosing between the use of
external and internal knowledge sources. We then
propose that firms face two types of risks in per-
forming R&D activities: an imitation risk , because
other organizations may copy the firm’s innovative
outcome, and a technology risk , derived from pos-
sible R&D failures due to technical problems or
negative market reactions.
Internal R&D developments enable firms to con-
trol outflows of knowledge and reduce the pos-
sibility of imitation by external actors; that is,
to reduce imitation risk, this entrenched behav-
ior relies on an internal coordination of interde-
pendences that is difficult to imitate externally
(Rivkin, 2000). It also integrates R&D activity
closely with the firm’s overall organization and
enhances secrecy postures, even before a formal
protection strategy might be implemented. How-
ever, an entrenchment strategy also limits inward
flows of external knowledge, which may cre-
ate a serious hurdle for firms, especially if they
bear technology risks (Christensen, 1997). Liter-
ature in both user-driven innovation (von Hip-
pel, 1998) and R&D complementarities (Helfat
and Quinn, 2006) shows that external knowl-
edge sourcing, in the form of alliances, joint ven-
tures, and informal interactions (e.g., meetings,
discussions, conferences), increases the probabil-
ity of R&D success, because it reduces myopia,
competence traps, and organizational path depen-
dence (Levinthal and March, 1993; Rosenkopf and
Almeida, 2003). In summary, though internaliza-
tion may protect innovative ideas—and reduce
imitation risks—openness to external knowledge
Strat. Mgmt. J., 35: 1144–1163 (2014)
DOI: 10.1002/smj
1146 M. S. Giarratana and M. Mariani
sourcing increases the probability of R&D success
and thereby reduces technology risk (Oxley and
Sampson, 2004).
We propose that two contingencies, namely, the
size of the R&D investment and the absorptive
capacity of the organizations located in the area
where the research is conducted, affect the impor-
tance of these two risks. The size of the R&D
investment affects the perceived technology risk:
A greater R&D investment increases the potential
loss if the final outcome fails. Higher R&D costs
for an innovation, especially if they are sunk,
generate institutional pressures on managers to
show that the innovation was worth financing,
especially if other projects were rejected or
postponed to do so (Klepper, 2007). External
stakeholders (e.g., banks, venture capitalists)
might exert similar pressures. Therefore, because
the use of external knowledge sources reduces
technology risk, all else being equal, innovations
that require greater investments will be more
prone to the use of external knowledge than those
that demand fewer resources.
Because a larger investment means that the
potential losses from imitation are greater, the
size of the R&D investment also prompts an imi-
tation risk if there is a tangible threat that the
knowledge produced will be imitated. Geographic
proximity to firms with high absorptive capacity
might extend this threat (Feldman, 1999; Saxe-
nian, 1994). Locations vary in the extent to which
they foster knowledge absorption, such that knowl-
edge spillovers are more pronounced in regions
with richer technological endowments (Forman
et al., 2008). Proximity also increases knowl-
edge spillovers (Jaffe, Trajtenberg, and Henderson,
1993), and if nearby organizations are endowed
with adequate absorptive capacity, they can rec-
ognize opportunities for learning and exploit the
knowledge produced by proximate others (Cohen
and Levinthal, 1990). Thus, imitation risk likely
increases with the level of absorptive capacity
of neighboring organizations (Shaver and Flyer,
2000; Thompson, 2006).
The absorptive capacity of colocated firms is a
characteristic of location in our theory. Other stud-
ies focus on the role of downstream market versus
technology competition (e.g., Alcacer and Zhao,
2012); we tackle the firm’s ability to understand,
imitate, and potentially use an innovative idea in
the same or different markets, including both prod-
uct and technology markets, before the innovation
Copyright © 2013 John Wiley & Sons, Ltd.
is protected by a patent. In turn, we predict that the
size of the R&D investment correlates positively
with the imitation risk only if there is a credi-
ble threat of imitation. In this case, the magnitude
of imitation risk depends on (1) the size of R&D
investment, which affects the value of the poten-
tial loss if imitation occurs, and (2) the absorptive
capacity of the neighboring organizations, which
determines the probability that knowledge will
be imitated. We expect that the external–internal
knowledge sourcing balance depends on the intrin-
sic, multiplicative nature of these two compo-
nents. In summary, technology risk fosters open-
ness to external knowledge sources, but imitation
risk counteracts it. When the fear of imitation
prevails, firms insulate themselves using inward-
looking behavior, such that they increase their use
of internal relative to external knowledge sourcing
(see also McEvily and Chakravarthy, 2002; Menon
and Pfeffer, 2003). We therefore propose that
Proposition: All else being equal, the absorp-
tive capacity of organizations in the geo-
graphic location in which R&D is conducted
negatively moderates the positive relation-
ship between the level of R&D investment and
the use of external (cf. internal) knowledge
sourcing.
EMPIRICAL EVIDENCE
The PatVal-EU survey
Our database reflects the PatVal-EU survey, con-
ducted during May 2003–January 2004, which
involved interviews with inventors of 9,550 patents
granted by the European Patent Office (EPO). The
questionnaire was submitted to inventors listed on
27,531 patents, with priority dates 1993–1997,
located in Germany, France, Italy, the Nether-
lands, Spain, and the United Kingdom. The survey
was designed to represent the universe of patents
in the EU, so it covers all technological fields
and features small, medium, and large businesses.
The database includes information about individ-
ual inventors and the nature of the innovation
processes. We excluded patents owned by pub-
lic research institutions and individual inventors,
as well as those with missing values for the key
explanatory variables, and thus obtained a sample
of 4,623 patents for our empirical analysis. The
Strat. Mgmt. J., 35: 1144–1163 (2014)
DOI: 10.1002/smj
 Fear of Imitation and Knowledge Sourcing
Appendix details the sample selection and related
technical issues.
Econometric estimation
Dependent variable and method of estimation
The unit of the analysis is research activity that
leads to a patented invention. The PatVal-EU
survey asks inventors to rate from 0 (not used
at all ) to 5 (very important) the “importance of
interactions such as discussions, meetings, and
sources of ideas with the following types of people
(apart from co-inventors) during the research that
led to the patented invention: (1) People belonging
to the inventor organization including affiliates
(hereafter, internal); (2) People belonging to other
unaffiliated organizations (hereafter, external).”
These interactions take the form of discussions,
meetings, and circulation of ideas, so they involve
an exchange of information that takes place during
verbal or physical contacts. From the responses
to this question, we construct two dependent
variables. First, we employ the 0–5 scores from
the inventors’ responses to derive the following
standardized measure:
External vs Internal
(External + 1) − (Internal + 1)
= .
(External + 1) + (Internal + 1)
This ratio indicates the relative importance of
external versus internal knowledge interactions; it
also correlates well (0.82) with the simple ratio of
the use of internal and external knowledge sources.
This measure mitigates self-evaluation bias, which
might generate spurious correlations if respondents
exhibited an exogenous tendency to choose high or
low values for all their responses, and it acknowl-
edges that the same value might result from dif-
ferent combinations of absolute scores. Even if
the same difference in levels occurs between two
scores (e.g., 5 (External) − 4 (Internal) = 1, and 2
(External) − 1 (Internal) = 1), our standardized dif-
ference is smaller when the importance of both
resources intensifies (e.g., it would be 0.09 in the
first case, but 0.2 in the second). That is, the dif-
ference takes a lower weight and approaches 0 if
it derives from the intense use of both resources
or their difference is small. In contrast, if scores
are low or their difference is high, the ratio
increases.
Copyright © 2013 John Wiley & Sons, Ltd.
1147
Second, we construct two alternative, dichoto-
mous, dependent variables. The INTERNAL vari-
able takes a value of 1 if inventors use internal
knowledge sources, regardless of their importance,
and 0 otherwise. The EXTERNAL variable takes
a value of 1 if the inventors use external sources,
regardless of their importance, and 0 otherwise.
Core covariates
Investments in the R&D process (RESEARCH
INVESTMENT) equal the total monetary cost, in
Euros, of the research that led to the patent, before
the date of application.
The PatVal-EU survey asks inventors to pro-
vide the zip code of the location where the
research leading to their patent was conducted. We
assign each reported zip code to its correspond-
ing NUTS3 region (Nomenclature of Territorial
Units for Statistics), the smallest geographic unit
available for each member state, and use it as the
geographic unit of analysis in our study. With these
externally defined boundaries, we avoid endoge-
nous definitions that reflect the sample covariates.
As a proxy of the absorptive capacity of neighbor-
ing organizations in a specific technology space,
we compute the number of patents classified in
the same ISI-INPI-OST technological class of the
focal patent, invented in the same NUTS3 region,
for every year between 1978 and the year in which
the inventor applied for the focal patent (see the
Appendix for the list of technological classes).
Dushnitsky and Lenox (2005) similarly exploit
the idea that patent stocks provide a good mea-
sure of knowledge capital and employ the stock of
prior patents as a proxy of firm absorptive capac-
ity. We extend this concept to locations and use
local patent stock related to the specific technology
of the surveyed patent to measure the absorptive
capacity of the region; specifically, our REGION
ABSORPTIVE CAPACITY variable equals the
depreciated patent stock of each region for a spe-
cific technology, over all the years available since
1978. The results indicate a 0.3 depreciation rate,
though the estimated results do not vary if we
use different depreciation rates (e.g., 0.15, 0.25,
0.50; available on request). This variable in turn
determines potential imitation threats in the same
technology space, in the same or different product
markets. To test our theory, we also consider the
interaction between RESEARCH INVESTMENT
and REGION ABSORPTIVE CAPACITY.
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1148 M. S. Giarratana and M. Mariani
In a complementary step, we use information
about the importance of protecting an invention
from imitation as a reason to patent, which can
confirm that the fear of imitation mediates the
firm’s inward-looking behavior when the two
contingencies occur. The FEAR OF IMITATION
indicator, which is independent of the two factors
that form the interaction term, enables us to
conduct a mediation test.
Control covariates
To estimate the effect of the absorptive capacity of
neighboring organizations, we control for the pos-
sible confounding effects of regional knowledge
endowments. The REGION TECHNOLOGICAL
SOURCES variable controls for the local avail-
ability of potentially useful knowledge sources to
develop inventions in the specific technology. We
collect all citations from patents in our sample to
previous patents (i.e., backward citations), and we
identify those attributed to all PatVal patents clas-
sified in each of the 30 technology ISI-INIPI-OST
classes. Our indicator equals the number of EPO
patents applied for in the technological classes
cited by the group of patents in the specific tech-
nology and invented in the NUTS3 region of the
focal patent in the three years before the patent
application. This measure is time, region, and tech-
nology specific, and it excludes self-citations to
patents by the same applicant.
We include other NUTS3 regional controls,
such as whether other patents invented in the
same regions were opposed by third parties in
the three years preceding the patent application
date; that is, REGION DUMMY_OPPOSITIONS
indicates potential patent races and conflicts.
Similarly, Clarkson and Toh (2010, 1203) use
“re-examinations in the U.S. patent system that
correspond to the patent oppositions in Europe,”
because of the inherent deterrence of these certifi-
cates. We control for POPULATION DENSITY,
REGION per capita GDP, the number of organi-
zations that applied for at least one patent located
in the same region (NUMBER APPLICANTS
REGION), and the average size of the firms in the
region (AVG FIRM SIZE REGION), which is the
only variable we could not specify at the NUTS3
geographic level, so we use the NUTS2 regional
level. From the European R&D Database, we
gather the number of public laboratories in each
region in 1995 (NUMBER PUBLIC RESEARCH
Copyright © 2013 John Wiley & Sons, Ltd.
LABS) to control for the availability of public
knowledge, which might correlate positively
with the use of external knowledge (Alcacer and
Chung, 2007). Because regions differ in size, we
also checked the results with a restricted sample of
patents invented in “nonoutlier” regions, in terms
of size. The inclusion of several regional controls
and an interaction term correlated with the two
component variables may raise multicollinearity
concerns. However, the many observations we use
and the estimation method (instrumental variable
GMM [generalized method of moments]) reduce
potential multicollinearity concerns (Farrar and
Glauber, 1967).
Individual inventor characteristics also may
correlate with the use of internal and external
knowledge sources. We control for the age of
the inventors at the date of the patent applica-
tion (INVENTOR AGE), their education (INVEN-
TOR_BS_DEGREE, _MS_DEGREE, _PHD_DE-
GREE, with high school degree as the baseline),
and gender (INVENTOR GENDER). Because the
years spent with a firm might influence the extent
to which inventors rely on people they know inter-
nally, we include a TENURE variable.
All the inventors in the sample are employed by
business organizations. From the COMPUSTAT
and Amadeus databases, we collect information
about firm size (EMPLOYEES) and R&D INTEN-
SITY, calculated at the parent company level as the
three-year average in the period before the patent
application date. By controlling for both firm size
and R&D intensity, we distinguish the effect of the
organization’s scale from the resources devoted to
the firm’s overall innovation activities. COMPUS-
TAT and Amadeus are biased toward large compa-
nies, so missing values generally indicate smaller
firms. To achieve a full sample, which features
missing data for EMPLOYEES and R&D INTEN-
SITY, we replace missing values with 0 and
include two dummy variables (DUMMY_MISS
EMPLOYEES and DUMMY_MISS R&D), which
equal 1 when the corresponding main variable
(EMPLOYEES or R&D INTENSITY) is 0.
Allison (2001) considers this “dummy variable
adjustment” appealing when data are nonrandomly
missing and the theory underlying the imputation
is reasonable. We use a “small employer organiza-
tion” dummy from the survey to perform a t-test
and compare the probability of small firms in the
sample with missing EMPLOYEES data versus
that probability in a sample without missing data.
Strat. Mgmt. J., 35: 1144–1163 (2014)
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 Table 1. Variable definitions
External vs. internal
Internal, External
RESEARCH INVESTMENT
REGION ABSORPTIVE CAPACITY
Copyright © 2013 John Wiley & Sons, Ltd.
REGION TECHNOLOGICAL SOURCES
REGION DUMMY_OPPOSITIONS
NUMBER PUBLIC RESEARCH LABS
NUMBER APPLICANTS REGION
AVG FIRM SIZE REGION
REGION GDP
POPULATION DENSITY
INVENTOR AGE
INVENTOR GENDER (MALE)
INVENTOR BS DEGREE
INVENTOR MS DEGREE
INVENTOR PHD DEGREE
INVENTOR TENURE
EMPLOYEES
DUMMY_MISS EMPLOYEES
R&D INTENSITY
DUMMY_MISS R&D
FIRM STOCK KNOW
NON_CORE_TECH
SUBSIDIARY
FEAR_OF_IMITATION
DOI: 10.1002/smj
Strat. Mgmt. J., 35: 1144–1163 (2014)
Definition
Dependent variable: relative use of external vs. internal knowledge sources. We used 0–5 scores to compute the following
+1)−(Internal +1)
standardized measure: External vs Internal = (External
(External +1)+(Internal +1) . Source: PatVal-EU
Dichotomous dependent variables: Internal (External) takes a value of 1 if the inventors use internal (external) knowledge sources,
irrespective of their importance, and 0 otherwise
Approximate total monetary cost in Euros of the research leading to the surveyed patent up to the date of application, excluding legal
fees or any other fees related to the patent application. Source: PatVal-EU
Discounted sum of EPO patents in the specific ISI-INPI-OST class and NUTS3 region of the focal patent. Start year for the
depreciated sum is 1978, and the end year is the year before the application date of the focal patent. Depreciation rate is 0.30.
Source: our elaborations from PatStat
Number of EPO patents invented in the ISI-INIPI-OST technological classes cited in the patents (by the applicants and the examiners)
and applied for in the three years before the focal patent application, in the NUTS3 region of the focal patent. The citations are
those to the group of patents classified in the specific technology of the focal patent. Source: our elaborations from PatStat.
Dummy variable that takes the value of 1 if at least one patent invented in the NUTS3 regions of the focal patent was opposed by
third parties in the three years preceding the application date. Source: legal status in the PatStat database
Number of public research laboratories and universities located in the NUTS3 regions in 1995. Source: European R&D Database.
Number of EPO patent applicants situated in the NUTS3 regions in 1995–1997. Source: our elaborations from PatStat
Average size in terms of persons employed of manufacturing enterprises situated in the NUTS2 regions in 1995–1998. Source: Regio
Eurostat
NUTS3 average per capita gross domestic product in thousands of purchasing power parity, corrected for inflation, during 1994–1996.
Source: Regio Eurostat
Ratio of the population (i.e., thousands of people living in the region, average 1994–1996) to the area of the NUTS3 region (square
kilometers). Source: Regio Eurostat
Age of the inventor at the date of the patent application. Source: PatVal-EU
Inventor gender: 1 if male and 0 if female. Source: PatVal-EU
Dummy: 1 if the inventor has a university BS degree; 0 otherwise. Source: PatVal-EU
Dummy: 1 if the inventor has a Master’s degree; 0 otherwise. Source: PatVal-EU
Dummy: 1 if the inventor has a PhD degree; 0 otherwise. Source: PatVal-EU
Number of years spent in the employer organization. Source: PatVal-EU
Number of employees of the parent company; three-year average before the application date of the focal patent. Source: COMPUSTAT
and Amadeus.
Dummy for missing observations on EMPLOYEES
Ratio of R&D expenditures to sales; three-year average before the application date of the focal patent. Source: COMPUSTAT and
Amadeus.
Dummy for missing observations on R&D INTENSITY
Cumulative number of patents granted to the consolidated applicant firm (1993–1997). Source: PatVal-EU
Dummy: 1 if the consolidated applicant firm’s share of patents in the specific technological field is less than 3% of all its patents
(1993–1997). Source: PatVal-EU
Fear of Imitation and Knowledge Sourcing
Dummy: 1 if the inventor’s employer is an affiliate or subsidiary of a parent company located in a different country. Source: PatVal-EU
Importance of the patent as means to prevent the invention from imitation (0–5 score) Source: PatVal-EU
1149
1150 M. S. Giarratana and M. Mariani

In the former case, the probability of finding a

Dummy equal to 1 if the idea for the invention came from pure inspiration or creativity or from the individual’s normal
Dummies for eight primary industrial activities for the applicant parent company. Source: COMPUSTAT and Amadeus
small firm is 4.5 times greater and statistically
significant at 1 percent. We also check our results

Number of citations received by the focal patent and made by the same applicant firm of the focal patent in the
with regressions that use dummies for firm size,

Excluded instrument: Dummy variable equal to 1 if the research leading to the patent received financing from
as provided by the survey, and regressions that
employ two subsamples of firms, those for which
we have data on EMPLOYEES and those for
which we have data on both EMPLOYEES and

Total number of citations received by the focal patent in the five years after the application date
R&D INTENSITY. The results remain consistent
with those we obtained when we include missing
observations for these two variables.
Dummies for 30 ISI-INPI-OST technological classes for the patent. Source: PatVal-EU

In addition, consistent with previous work (e.g.,

Hall, Jaffe, and Trajtenberg, 2005; Henderson
Dummies for the country of invention (DE, ES, IT, NL, UK). Source: PatVal-EU

and Cockburn, 1994; Zhang, Baden-Fuller, and

Mangematin, 2007), we control for the firm’s stock
government research programs or other public funds. Source: PatVal-EU

of knowledge and experience with a technology

(FIRM STOCK KNOW). We determine whether
Dummies for the application year (1994–1998). Source: PatVal-EU

the focal patent represents the firm’s core tech-

Definition

nology, such that NON_CORE_TECH equals one

if the firm’s share of patents in that technol-
ogy is less than 3 percent of all its patents in
1993–1997 (Granstrand, Patel, and Pavitt, 1997),
and we include the primary industrial classification
code that links the core business activity to the
parent company. Finally, a SUBSIDIARY dummy
five years following the application year

variable controls for whether the firm is a sub-

sidiary of a multinational company, in which case
Firm interest paid on total liabilities

location choices might reflect efforts to absorb

regional spillovers (Alcacer, 2006; Frost, 2001).
job, which is not inventing

We present the estimated results for models

that employ firm and regional dummies first,
then address the complete set of regional and
firm variables. All the regressions include controls
for the application year (1994–1998), country
of invention, and 30 ISI-INPI-OST technological
classes (see the Appendix). In Table 1, we define
the variables; we provide their descriptive statistics
and the correlation matrix in Table 2.
FIRM INTERESTS ON LIABILITIES

TOT NR OF FORWARD CITATIONS

Endogeneity and estimated results

We estimate the following equation:
FORWARD SELF-CITATIONS

(External vs.Internal )ipfr = const

GOVERNMENT FUNDS
Technological dummies

+ α1 RESEARCH INVESTMENTp
Continued

+ α2 REGION ABSORPTIVE CAPACITYr

Country dummies

Firm SIC codes

SERENDIPITY
Year dummies

+ α3 (RESEARCH INVESTMENTp∗
Table 1.

REGION ABSORPTIVE CAPACITYr)

+ βXipfr + ipfr ,

Copyright © 2013 John Wiley & Sons, Ltd. Strat. Mgmt. J., 35: 1144–1163 (2014)
DOI: 10.1002/smj
 Table 2. Descriptive statistics and correlation among variables

Variable Mean s.d. 1 2 3 4 5 6 7 8 9 10 11 12

1 Ext_IntSTD −0.287 0.354 1

2 Internal 0.847 0.360 −0.50*
3 External 0.478 0.500 0.60* 0.24*
4 PROJECT INVESTMENT 415,112 5,724,947 −0.01 0.02 0.01
5 REG ABSORP CAPACITY 22.962 0.02 0.00

Copyright © 2013 John Wiley & Sons, Ltd.

51.894 −0.06* −0.02
6 REG. TECH. SOURCES 342.717 794.024 −0.05* 0.02 −0.01 0.00 0.66*
7 REG.D_OPPOSIT. 0.706 0.456 −0.02 0.03* 0.02 −0.01 0.07* 0.05*
8 # PUBLIC LABS 18.836 51.963 −0.01 0.02 −0.01 0.02 0.04* 0.07* 0.03
9 # APPLICANTS 228.063 401.704 −0.07* 0.03* −0.03* −0.01 0.44* 0.43* 0.19* 0.10*
10 AVG FIRM SIZE 84.764 73.152 0.01 −0.03* −0.01 0.01 −0.06* −0.06* 0.19* −0.23* 0.22*
11 REGION GDP 10.002 0.349 −0.06* 0.01 −0.06* −0.01 0.10* 0.07* 0.20* −0.02 0.54* 0.46*
12 POP DENSITY 1.082 1.063 −0.05* 0.06* 0.00 −0.01 0.06* 0.05* 0.14* 0.30* 0.57* 0.28* 0.56*
13 INVENTOR AGE 44.919 9.476 0.07* −0.13* −0.06* 0.02 −0.03* −0.04* 0.03* −0.04* 0.00 0.07* 0.01 0.01
14 GENDER (MALE) 0.982 0.131 0.00 −0.01 −0.02 0.00 0.01 −0.01 0.00 −0.03* 0.00 0.03* 0.01 0.00
15 BS DEGREE 0.267 0.443 0.02 −0.05* −0.02 −0.02 −0.08* −0.06* 0.07* −0.12* 0.02 0.48* 0.13* 0.09*
16 MS DEGREE 0.282 0.450 −0.04* 0.08* 0.02 0.01 0.10* 0.09* −0.10* 0.13* −0.05* −0.58* −0.22* −0.14*
17 PHD DEGREE 0.277 0.448 −0.04* 0.10* 0.05* 0.03 0.02 0.02 0.09* −0.02 0.11* 0.24* 0.18* 0.16*
18 TENURE 14.934 10.325 0.01 −0.07* −0.07* 0.00 0.02 0.02 0.02 0.00 0.02 0.05* 0.01 0.03*
19 EMPLOYEES 105,169 121,008 −0.05* 0.04* 0.00 0.01 0.28* 0.27* 0.06* −0.05* 0.29* 0.21* 0.23* 0.19*
20 R&D INTENSITY 0.054 0.033 −0.10* 0.08* −0.02 0.01 0.18* 0.18* 0.08* −0.02 0.20* 0.16* 0.18* 0.16*
21 FIRM STOCK KNOWLEDGE 247.028 418.270 −0.08* 0.05* −0.01 0.01 0.55* 0.53* 0.06* −0.04* 0.41* 0.14* 0.23* 0.15*
22 NON CORE TECH 0.067 0.249 0.01 0.02 0.02 0.00 −0.05* 0.03* 0.03 −0.03 0.04* 0.07* 0.04* 0.03*
23 SUBSIDIARY 0.099 0.299 0.00 0.02 0.03 0.01 −0.04* −0.06* −0.02 0.06* −0.08* −0.14* −0.10* −0.04*
24 FEAR OF IMITAT 3.862 1.516 −0.04* 0.06* 0.02 0.01 −0.08* −0.10* 0.04* −0.04* −0.03 0.16* 0.05* 0.03
25 GOV. FUNDS 0.066 0.248 0.11* 0.02 0.12* 0.07* −0.04* −0.05* −0.05* 0.01 −0.03 −0.12* −0.05* −0.04*
26 SERENDIPITY 0.109 0.312 0.06* −0.13* −0.05* −0.02 −0.06* −0.05* 0.05* −0.05* −0.02 0.23* 0.04* 0.05*
27 FIRM INT. ON LIABILITIES 0.032 0.015 0.01 0.01 0.01 −0.02 0.11* 0.09* −0.16* 0.07* −0.05* −0.34* −0.16* −0.16*
28 FWD SELF-CITS 0.154 0.477 −0.04* 0.03 0.00 0.00 0.01 0.03* −0.03* −0.01 0.02 0.02 0.04* 0.00
29 TOT FWD CITS 1.260 2.017 −0.01 0.05* 0.04* 0.01 0.02 0.10* −0.01 0.05* 0.04* −0.03* 0.04* 0.02
Fear of Imitation and Knowledge Sourcing

DOI: 10.1002/smj
Strat. Mgmt. J., 35: 1144–1163 (2014)
1151
 1152

Table 2. Continued

Variable 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

1 Ext_IntSTD
2 Internal
3 External
4 PROJECT INVESTMENT
5 REG ABSORP CAPACITY
6 REG. TECH. SOURCES

Copyright © 2013 John Wiley & Sons, Ltd.

7 REG.D_OPPOSIT.
8 # PUBLIC LABS
9 # APPLICANTS
10 AVG FIRM SIZE
11 REGION GDP
12 POP DENSITY
13 INVENTOR AGE
M. S. Giarratana and M. Mariani

14 GENDER (MALE) 0.10*

15 BS DEGREE 0.03* 0.02
16 MS DEGREE −0.10* −0.03* −0.38*
17 PHD DEGREE −0.04* −0.02 −0.37* −0.39*
18 TENURE 0.69* 0.06* 0.05* −0.07* −0.14*
19 EMPLOYEES −0.03 0.01 0.09* −0.09* 0.13* 0.06*
20 R&D INTENSITY −0.06* −0.02 0.00 −0.08* 0.23* 0.01 0.57*
21 FIRM STOCK KNOWLEDGE −0.04* 0.01 −0.03 0.01 0.15* 0.06* 0.72* 0.53*
22 NON CORE TECH 0.00 0.00 0.01 −0.04* 0.08* 0.01 0.22* 0.19* 0.21*
23 SUBSIDIARY 0.02 −0.04* −0.06* 0.08* −0.02 −0.03* −0.03* 0.05* −0.08* −0.01
24 FEAR OF IMITAT −0.06* −0.02 0.12* −0.11* −0.03* −0.04* −0.03* 0.00 −0.07* −0.04* −0.02
25 GOV. FUNDS −0.01 0.00 −0.10* 0.09* 0.02 −0.04* −0.05* −0.03* −0.04* 0.00 −0.02 −0.02
26 SERENDIPITY 0.10* 0.02 0.19* −0.18* −0.06* 0.06* 0.00 −0.04* −0.04* 0.00 −0.02 0.00 −0.08*
27 FIRM INT. ON LIABILITIES −0.04* −0.02 −0.17* 0.23* −0.13* −0.03 −0.08* −0.15* −0.06* −0.06* 0.05* −0.09* 0.02 −0.07*
28 FWD SELF-CITS −0.01 0.00 −0.03 −0.02 0.05* 0.01 0.03 0.03 0.03 −0.02 0.01 0.02 0.01 0.00 0.01
29 TOT FWD CITS −0.05* 0.00 −0.05* 0.01 0.08* −0.04* 0.03* 0.06* 0.04* −0.02 0.02 0.00 0.02 −0.05* 0.04* 0.44*

N = 4,623. N EMPLOYEES = 3,315; N R&D INTENSITY = 2,118; N FEAR OF IMITATION = 4,571; N FIRM INTERESTS ON LIABILITIES = 2,679; N SELF AND FORWARD
CITATIONS = 4,585. Dummies for country, firm sector, and application year are not reported.
*Significant at 5%.

DOI: 10.1002/smj
Strat. Mgmt. J., 35: 1144–1163 (2014)
 Fear of Imitation and Knowledge Sourcing
where i is the inventor, p is the research project
leading to the patent, f is the parent firm, and r is
the region. The control variables are represented
by X. In a different estimation model, we use
the INTERNAL and EXTERNAL variables as
dichotomous, dependent variables.
A concern with regard to our empirical model
is the possibility of an endogeneity bias. For
example, as Knott (2008) suggests, an R&D
investment might be endogenous with respect to
the capacity to assimilate and use new knowledge,
with causality opposite to that we hypothesize
(Jaffe, 1986). An investment in an R&D project
also might correlate with other unobservable (or
not directly measurable) characteristics of the
econometric estimation, which would affect both
the R&D investment and the use of external versus
internal knowledge. We therefore attempt to find a
vector of instruments that correlates with the R&D
investment but not with the error term. We opt for
variables that capture the financial dimension of
the research investment.
We propose three variables: the availability of
public funds, the serendipitous or unplanned nature
of the innovation, and the cost to the firm of
borrowing money. First, the availability of pub-
lic funds is a dichotomous variable, drawn from
the PatVal-EU survey, which takes a value of 1
if the research project received financing from
government research programs or other public
funds (GOVERNMENT FUNDS). This project-
specific variable directly relates to the funding
options for the investment that leads to the patent.
Second, we gather from the surveyed inventors
the dichotomous SERENDIPITY variable, which
takes a value of 1 if the idea for the innova-
tion came from pure inspiration or creativity or
another job (i.e., not inventing) and was patented
without further R&D costs. Third, the firm-level
variable that proxies for the cost of borrowing
money (FIRM INTERESTS ON LIABILITIES)
reflects the ratio between total interest paid and
total liabilities, computed as a yearly average in the
three years preceding the patent application date.
We obtain it from the COMPUSTAT database,
but it produces many missing observations. There-
fore, we first allow the model to determine the
research investment variable endogenously, using
the GOVERNMENT FUNDS and SERENDIP-
ITY variables as instruments; then, with a smaller
sample, we estimate the model by adding FIRM
INTERESTS ON LIABILITIES as an excluded
Copyright © 2013 John Wiley & Sons, Ltd.
1153
instrument. Because the research investment vari-
able also appears in the interaction term, we use
the product of the regional variable and an instru-
ment (i.e., project-level excluded GOVERNMENT
FUNDS) to determine the interaction term. Our
argument for the exclusion restrictions is that
the excluded instruments affect the available or
planned R&D funds (i.e., R&D investment) and
thus the use of knowledge sources, irrespective
of their internal or external origin. The correla-
tions in Table 2 support this argument: GOV-
ERNMENT FUNDS is positively correlated with
internal and external knowledge use and there-
fore with the use of knowledge sources in gen-
eral. The same applies to FIRM ASSETS ON
LIABILITIES. Similarly, SERENDIPITY is neg-
atively correlated with both internal and external
variables. The reduced form model that employs
the dichotomous internal and external knowledge
measures as dependent variables in a bivariate pro-
bit regression confirms the strong correlation of the
instruments with both internal and external knowl-
edge sources. We employ two-stage least square
regressions and a GMM when the dependent vari-
able is the standardized internal versus external
knowledge variable; we use a two-step procedure
for the two separate internal and external variables
in the bivariate probit model.
In Table 3, we present the results for the two-
stage least square regressions that employ regional
NUTS3 dummies and applicant firm dummies, as
well as dummies for the patent application year,
technological field, and inventor’s country. The
sample of observations is restricted to the 3,702
patents issued to applicants with more than one
patent in our data set. We employ two excluded
instruments in specifications 1.1 and 1.2 and three
instruments in specifications 2.1 and 2.2. The
structure of our data and the reduced sample
size prevent us from estimating some firm and
regional controls (e.g., REGION ABSORPTIVE
CAPACITY) when we also employ regional and
firm dummies, because they combine two or more
dummy variables. In Table 4, we report the first-
stage regressions for the excluded instruments.
The F -values suggest they are strong instruments.
Then, Table 5 contains the results for two sets of
the GMM models that use the full set of variables
instead of firm and regional dummies, for the com-
plete sample of 4,623 observations. The first spec-
ification of each set is the baseline model, the sec-
ond specification adds the two core covariates, and
Strat. Mgmt. J., 35: 1144–1163 (2014)
DOI: 10.1002/smj
1154 M. S. Giarratana and M. Mariani
Table 3. Two-stage least squares within estimations: firm and regional dummies

Dependent variable: External vs. Internal

(1.1) (1.2) (2.1) (2.2)

RESEARCH INVESTMENT 0.008 [0.013] 0.044** [0.020] −0.008 [0.015] 0.029 [0.022]
REGION ABSORPTIVE −0.015*** [0.006] −0.017*** [0.007]
CAPACITY* RESEARCH
INVESTMENT
Inventor controls
INVENTOR AGE 0.138*** [0.046] 0.104** [0.050] 0.184*** [0.056] 0.172*** [0.060]
INVENTOR GENDER (MALE) −0.013 [0.048] 0.007 [0.052] −0.015 [0.058] 0.000 [0.063]
INVENTOR BS DEGREE −0.028 [0.027] −0.037 [0.029] −0.028 [0.033] −0.045 [0.036]
INVENTOR MS DEGREE −0.034 [0.026] −0.036 [0.027] −0.022 [0.032] −0.008 [0.035]
INVENTOR PHD DEGREE −0.026 [0.028] −0.027 [0.029] −0.011 [0.034] −0.015 [0.036]
TENURE −0.025* [0.013] −0.017 [0.014] −0.030* [0.016] −0.031* [0.018]
Cons −0.754 [0.514] −0.346 [0.560] −0.126 [0.520] 0.332 [0.591]
N 3,702 3,702 2,547 2,547
Wald chi-square 3718.23 3354.89 2770.42 2373.52
Chi-square test 6.65*** 6.75***

Standard errors are in parentheses. All regressions include dummies for inventor country, year of application, technological field
(30 ISI-INPI-OST classes), NUTS3 regions, and applicant firms. Specifications 1.1 and 1.2 use GOVERNMENT FUNDS and
SERENDIPITY as excluded instruments. Specifications 2.1 and 2.2 employ GOVERNMENT FUNDS, SERENDIPITY, and FIRM
INTERESTS ON LIABILITIES as excluded instruments.
*p < 0.10; **p < 0.05; ***p < 0.01.

the third adds the interaction term. All specifica-
tions include dummies for missing values pertain-
ing to employees and R&D intensity, inventor’s
country, patent application year, primary indus-
trial firm activity, and technological field. Standard
errors are clustered by parent firm. All variables
are logarithms, except the shares and dichotomous
variables.
The estimated results in Table 3 show that
RESEARCH INVESTMENT is positive (and sta-
tistically significant at 5%, specification 1.2) when
we include the interaction term. The interaction
term is negatively associated with the probabil-
ity of using external versus internal knowledge
sources (statistically significant at 1%, specifica-
tions 1.2 and 2.2). The chi-square value for the
null hypothesis that the interaction term equals 0
is 6.65 when we use two instruments and 6.75
when we use three instruments (both statistically
significant at 1%). Thus, including the interaction
term improves the model’s explanatory power.
The estimated results from the second stage
in Table 5 confirm that neither the research
investment nor the region absorptive capacity
variable is statistically significant when we do
not include the interaction term in the models
(specifications 3.2 and 4.2). The joint test to
determine if RESEARCH INVESTMENT and
Copyright © 2013 John Wiley & Sons, Ltd.
REGIONAL ABSORPTIVE CAPACITY equal 0
in the transitions from specification 3.1 to 3.2 and
from model 4.1 to 4.2. cannot be rejected. When
we include the interaction term that controls for
contingencies pertaining to a fear of imitation,
RESEARCH INVESTMENT has a positive and
statistically significant effect on the probability
of using more external than internal knowledge
(specifications 3.3 and 4.3). Its effect is positive
in relation to the dependent variable at low values
of regional absorptive capacity. When expensive
research takes place in a region that ranks among
the top 42 percent in our sample, its effect
becomes negative and statistically significant, as
the interaction term suggests. The local presence of
organizations embedded with absorptive capacity
in the specific technology negatively moderates the
otherwise positive effect of the research investment
on the probability of using external more than
internal knowledge sources. The interaction term is
negative and statistically significant at a 1 percent
level in specification 3.3 and a 5 percent level
in specification 4.3, though the magnitude is
greater than when we control for firm and
regional dummies. In addition, the REGION
ABSORPTIVE CAPACITY variable is positive
and statistically significant at the 1 percent level
(5% in specification 4.3) when we include the
Strat. Mgmt. J., 35: 1144–1163 (2014)
DOI: 10.1002/smj

Table 4. First-stage estimates
Instrumental variables (Endogenous variable: RESEARCH INVESTMENT)
SERENDIPITY −1,492*** [0.157] −1.482*** [0.187] −1.584*** [0.142] −1.610*** [0.203]
GOVERNMENT FUNDS 0.704* [0.360]
FIRM INTERESTS ON
LIABILITIES
First-stage estimates of: (a) specification 1.2 in Table 3; (b) specification 2.2 in Table 3; (c) specification 3.3 in Table 5; (d) specification
4.3 in Table 5. The first stage F -statistics is 42.59 (a) and 82.69 (c) when only two instruments are included; it is 21.43 (b) and
39.75 (d) with three instruments.
*p < 0.10. **p < 0.05. ***p < 0.01.
interaction term. The test for the inclusion of the
interaction term in the transition from specification
3.2 to 3.3 returns a chi-square value of 6.82,
which is statistically significant at 0.01. Similarly,
the chi-square value for the null hypothesis that
the interaction term equals 0 is 5.79, statistically
significant at 2 percent in the transition from
specification 4.2 to 4.3. The non-instrumental
variable regressions that we estimate through
ordinary least squares produce results that are
consistent with those in Table 5. They are available
on request.
Using the dichotomous INTERNAL and EX-
TERNAL indicators as dependent variables, we
estimate a bivariate probit model that, in a two-
step regression, includes the predicted values of
the RESEARCH INVESTMENT variable obtained
from the excluded instruments employed in the
GMM regressions in Table 5 (specification 1.3).
The estimated results (available in the online
supporting information, Table S1) reveal that
the research investment increases the use of
both internal and external knowledge sources,
that is, technology and imitation risks. However,
when we include the interaction term, the effect
of the research investment is stronger for the
use of internal knowledge at high values of
the regional absorptive capacity variable, when
costly research projects are conducted in regions
populated by organizations with high absorptive
capacity. Therefore, the interacted variable is
positive and statistically significant with regard
to the probability of using internal knowledge.
The effect is negative, though statistically not
significant, on the use of external knowledge.
We next compute the marginal effects of the
covariates on the predicted probabilities of the
four combinations of outcomes, obtained with the
bivariate probit model, to disentangle the effects of
Copyright © 2013 John Wiley & Sons, Ltd.
Fear of Imitation and Knowledge Sourcing 1155
(a) (b) (c) (d)
1.103** [0.475] 0.947*** [0.222] 1.365*** [0.304]
−0.255 [0.342] −0.124 [0.118]
the covariates on the probability of using external
or internal knowledge, after controlling for the use
of knowledge sources in general, irrespective of
their origin. Specifically, the Internal and External
interactions correspond to the predicted probability
that the internal and external variables both equal
1; the Only Internal interactions indicate the
predicted probability that the internal variable is
1 but the external variable is 0; the Only External
interactions reveal the predicted probability that
the internal variable is 0 and the external variable
is 1; and No Interactions show the predicted
probability that both variables equal 0. The
estimated results in Table S2 in the supporting
information show that the interaction term fosters
the use of knowledge from internal sources and
lowers the use of external sources. These effects
are statistically significant at the 10 and 5 percent
levels, respectively.
Following Ai and Norton (2003) and Nor-
ton et al. (2004), we also compute the partial
effects of the covariates on the predicted prob-
ability of using only internal or external inter-
actions. Figure S1 in the supporting information
provides a graphic analysis of the effect of the
interaction term on the probability of using inter-
nal knowledge (a) or external knowledge (b).
Holding the other variables at their means, as
either the REGION ABSORPTIVE CAPACITY
or RESEARCH INVESTMENT variable moves
from its minimum to its maximum values (loga-
rithms, as in the regressions), the predicted prob-
ability of internal knowledge use decreases. The
combined increase of the two variables produces
a positive effect on the use of internal knowl-
edge, though. The two covariates produce an
opposite effect on the predicted probability of
using external knowledge, which decreases as
both REGION ABSORPTIVE CAPACITY and
Strat. Mgmt. J., 35: 1144–1163 (2014)
DOI: 10.1002/smj
1156 M. S. Giarratana and M. Mariani

Table 5. Generalized method of moments estimations

Dependent variable: External vs. Internal (3.1) (3.2) (3.3) (4.1) (4.2) (4.3)

Explanatory variable
RESEARCH INVESTMENT 0.009 0.083*** −0.017 0.115**
[0.009] [0.030] [0.013] [0.050]
REGION ABSORPTIVE CAPACITY 0.000 0.396*** −0.002 0.570**
[0.007] [0.153] [0.011] [0.241]
REGION ABSORPTIVE CAPACITY * −0.038*** −0.054**
RESEARCH INVESTMENT [0.014] [0.024]
Regional controls
REGION TECHNOLOGICAL SOURCES −0.008** −0.011*** −0.011*** −0.007 −0.008 −0.015**
[0.004] [0.004] [0.004] [0.005] [0.006] [0.006]
REGION DUMMY_OPPOSITIONS 0.002 0.019 0.022 −0.024 0.009 0.039
[0.017] [0.017] [0.019] [0.023] [0.025] [0.040]
NUMBER PUBLIC RESEARCH LABS 0.015** 0.009 0.008 0.015* 0.009 0.007
[0.006] [0.006] [0.007] [0.008] [0.008] [0.009]
NUMBER APPLICANTS REGION −0.007 0.002 0.000 −0.011 −0.009 0.005
[0.007] [0.009] [0.009] [0.008] [0.020] [0.018]
AVG FIRM SIZE REGION 0.001* 0.001** 0.001** 0.000 0.001 0.001
[0.000] [0.000] [0.001] [0.000] [0.001] [0.001]
REGION GDP −0.062** −0.082** −0.077** −0.033 −0.039 −0.037
[0.027] [0.031] [0.030] [0.031] [0.172] [0.036]
POPULATION DENSITY −0.004 −0.002 0.000 −0.012 −0.010 −0.036
[0.007] [0.008] [0.009] [0.009] [0.019] [0.027]
Inventor controls
INVENTOR AGE 0.131*** 0.127*** 0.115*** 0.176*** 0.175 0.105
[0.034] [0.034] [0.039] [0.045] [0.129] [0.095]
INVENTOR GENDER (MALE) −0.030 −0.030 −0.044 0.005 −0.028 −0.013
[0.032] [0.032] [0.036] [0.039] [0.054] [0.052]
INVENTOR BS DEGREE −0.037* −0.023 −0.022 −0.066** −0.055* −0.011
[0.019] [0.019] [0.021] [0.028] [0.028] [0.049]
INVENTOR MS DEGREE −0.047** −0.044** −0.033 −0.058** −0.038 −0.011
[0.019] [0.020] [0.022] [0.028] [0.030] [0.045]
INVENTOR PHD DEGREE −0.026 −0.023 −0.019 −0.034 0.002 0.047
[0.020] [0.021] [0.024] [0.027] [0.030] [0.050]
TENURE −0.024** −0.029*** −0.025** −0.018 −0.028 0.004
[0.009] [0.009] [0.010] [0.012] [0.024] [0.032]
Applicant controls
EMPLOYEES 0.013*** 0.013*** 0.015*** 0.018* 0.015 0.032
[0.005] [0.005] [0.006] [0.010] [0.016] [0.020]
DUMMY_MISS EMPLOYEES 0.094** 0.092** 0.107** 0.104 0.080 0.275
[0.041] [0.042] [0.045] [0.123] [0.177] [0.244]
R&D INTENSITY −0.287 −0.658** −0.647** −0.444* −0.682*** −0.840**
[0.277] [0.310] [0.279] [0.256] [0.263] [0.363]
DUMMY_MISS R&D 0.028 0.015 0.022 0.002 −0.008 0.040
[0.022] [0.023] [0.024] [0.022] [0.026] [0.048]
FIRM STOCK KNOW −0.019*** −0.021*** −0.022*** −0.019** −0.018 −0.025**
[0.005] [0.005] [0.005] [0.009] [0.011] [0.012]
NON_CORE_TECH 0.030 −0.007 −0.005 0.026 −0.005 −0.002
[0.026] [0.027] [0.029] [0.29] [0.031] [0.030]
SUBSIDIARY 0.005 0.006 0.003 0.013 0.007 0.028
[0.019] [0.019] [0.020] [0.023] [0.024] [0.035]
Cons −0.151 −0.027 −0.842* −0.607 −0.195 −3.436
[0.296] [0.372] [0.433] [0.379] [2.463] [2.283]
N 4,623 4,623 4,623 2,679 2,679 2,679
Wald chi-square 390.75 375.29 348.65 578.27 579.69 402.13
Chi-square test 1.04 6.82*** 1.90 5.79**

Standard errors are in parentheses. All regressions include dummies for inventor country, year of application, firm standard industrial classification
codes, and technological field (30 ISI-INPI-OST classes). Specifications 3.2 and 3.3 use GOVERNMENT FUNDS and SERENDIPITY as excluded
instruments. Specifications 4.2 and 4.3 employ GOVERNMENT FUNDS, SERENDIPITY, and FIRM INTERESTS ON LIABILITIES as excluded
instruments.
*p < 0.10; **p < 0.05; ***p < 0.01.

Copyright © 2013 John Wiley & Sons, Ltd. Strat. Mgmt. J., 35: 1144–1163 (2014)
DOI: 10.1002/smj
 Fear of Imitation and Knowledge Sourcing
RESEARCH INVESTMENT increase. If only one
of the covariates increases, the use of external
knowledge increases as well.
Regarding the control covariates, REGION
TECHNOLOGICAL SOURCES negatively con-
tributes to the probability of using external versus
internal sources of knowledge, according to the
GMM results. However, when we disentangle the
effect on internal and external knowledge in the
bivariate probit regressions, we find no statistically
significant correlation with the use of either inter-
nal or external knowledge. Perhaps the REGION
ABSORPTIVE CAPACITY variable already cap-
tures the importance of knowledge spillovers,
especially after we include the interaction term that
isolates the entrenchment effect (Feldman, 1999;
Saxenian, 1994), as suggested by its positive statis-
tical significance (< 5%). INVENTOR AGE cor-
relates positively with the standardized dependent
variable: It relates negatively to the use of both
internal and external knowledge, but the magni-
tude of the latter effect is smaller than that of
the former in the bivariate probit estimates. The
level of education, especially Master’s and doc-
toral degrees, correlates positively with the use of
both internal and external knowledge. However,
when the positive effect on internal knowledge is
greater than that on external knowledge, it pro-
duces a negative sign for the standardized vari-
able, and in the full specification models in Table
3 and 5, it loses statistical significance. Tenure
with the organization negatively correlates with the
standardized variable. The estimates of the firm
covariates are consistent with the results of exist-
ing studies. In particular, after controlling for the
size of the firm (which relates positively to the use
of external knowledge) and its R&D intensity, the
variable that indicates the knowledge stock of the
firm confirms inward-looking behavior by firms
with greater internal competencies—in confirma-
tion of the leader versus laggard result proposed
by Shaver and Flyer (2000).
INTERNAL AND EXTERNAL
KNOWLEDGE, AND THE FEAR OF
IMITATION
Several authors argue that fear of imitation affects
a firm’s innovative behavior (Alcacer and Zhao,
2012; Shaver and Flyer, 2000), though empirical
studies tend to treat it as an unobservable variable.
Copyright © 2013 John Wiley & Sons, Ltd.
1157
Because the theoretical arguments leading to our
proposition are grounded in imitation threats, we
investigate whether a direct measure of fear of
imitation produces statistical evidence in line with
our expectations.
To this end, we turn to the FEAR OF IMITA-
TION variable reported by the inventors in the
survey; this variable indicates the importance of
protecting an invention from imitation as a reason
to patent. We use a simple mediation test (Baron
and Kenny, 1986) with three regressions: only
the mediator (FEAR OF IMITATION), only the
core covariate (RESEARCH INVESTMENT ×
REGION ABSORPTIVE CAPACITY), and both.
In the first two regressions, the mediator and the
core covariate have the expected signs and are
statistically significant. With the third regression,
we determine whether the mediator still signifi-
cantly affects the dependent variable when the core
covariate loses predictive power; perfect media-
tion exists if the core covariate has no effect. As
we report in Table 6, the first regression (spec-
ification 5) confirms that fear of imitation has
a negative impact, statistically significant at the
5 percent level, on the probability of using exter-
nal versus internal knowledge sources. The second
regression (specification 6) replicates the findings
in Table 5, such that the interaction term exerts
a negative, statistically significant effect on the
dependent variable. The only difference is that the
sample is restricted to 4,571 observations rather
than the 4,623 in Table 5 that include entries
with missing observations for the fear of imita-
tion variable. Finally, in the third regression in
specification 7, fear of imitation as the mediator
remains negative and statistically significant at the
5 percent level, whereas the interaction loses sta-
tistical significance. This result provides additional
evidence, consistent with the claim that fear of
imitation mediates the R&D openness postures of
firms.
With these results, we also can compare the
constrained model 5 (including the fear of imita-
tion variable but not the interaction term) with the
unconstrained model 7, and then the constrained
model 6 (including the interaction term but not the
fear of imitation variable) with the unconstrained
model 7. The incremental test shows that mov-
ing from model 5 to 7 does not improve the fit
of the regression notably. The chi-square statis-
tic for the hypothesis that the interaction term is
equal to 0 is 0.42, and the statistical significance
Strat. Mgmt. J., 35: 1144–1163 (2014)
DOI: 10.1002/smj
1158 M. S. Giarratana and M. Mariani
Table 6. Fear of imitation and forward self-citations

Ext. vs. Ext. vs. Ext. vs. Ext. vs. Ext. vs. Forward
Int Int Int Int Int self-cits
Dependent variable (5) (6) (7) D_OPP = 1 (8) D_OPP = 0 (9) (10)

RESEARCH INVESTMENT 0.054** 0.083*** 0.022 0.097*** 0.066 −0.035*

[0.025] [0.030] [0.052] [0.037] [0.044] [0.019]
REGION ABSORPTIVE CAPACITY 0.008 0.405*** −0.166 0.486*** 0.005 −0.160*
[0.013] [0.154] [0.267] [0.174] [0.237] [0.093]
REGION ABSORPTIVE CAPACITY * −0.038*** 0.016 −0.046*** 0.000 0.015*
RESEARCH INV. [0.015] [0.025] [0.016] [0.022] [0.009]
FEAR OF IMITATION −0.366** −0.368**
[0.155] [0.163]
Regional controls
REGION TECHNOLOGICAL SOURCES 0.005 −0.011*** 0.005 −0.011** 0.000 0.004
[0.008] [0.004] [0.009] [0.005] [0.009] [0.003]
REGION DUMMY_OPPOSITIONS 0.045 0.022 0.043 −0.012
[0.038] [0.019] [0.038] [0.010]
NUMBER PUBLIC RESEARCH LABS −0.010 0.008 −0.010 0.006 0.010 0.001
[0.015] [0.006] [0.016] [0.007] [0.010] [0.003]
NUMBER APPLICANTS REGION −0.031* 0.000 −0.030* −0.003 −0.002 −0.004
[0.017] [0.009] [0.017] [0.009] [0.015] [0.004]
AVG FIRM SIZE REGION 0.001 0.001** 0.001 0.001 0.001* 0.000
[0.001] [0.000] [0.001] [0.000] [0.001] [0.000]
REGION GDP −0.040 −0.078** −0.041 −0.050 −0.141*** 0.002
[0.051] [0.031] [0.051] [0.032] [0.053] [0.017]
POPULATION DENSITY 0.022 0.000 0.023 −0.006 0.008 −0.002
[0.019] [0.009] [0.020] [0.011] [0.013] [0.005]
Inventor controls
INVENTOR AGE −0.071 0.115*** −0.064 0.128*** 0.123* 0.021
[0.114] [0.039] [0.113] [0.047] [0.060] [0.021]
INVENTOR GENDER (MALE) −0.115 −0.041 −0.108 −0.017 −0.048 0.026
[0.082] [0.038] [0.082] [0.046] [0.069] [0.030]
INVENTOR BS DEGREE −0.070* −0.019 −0.071* −0.001 −0.051 −0.001
[0.040] [0.021] [0.040] [0.026] [0.035] [0.010]
INVENTOR MS DEGREE −0.080* −0.034 −0.084* −0.032 −0.053 −0.001
[0.042] [0.022] [0.044] [0.031] [0.035] [0.014]
INVENTOR PHD DEGREE −0.139** −0.018 −0.140** −0.011 −0.121*** 0.005
[0.064] [0.024] [0.066] [0.028] [0.045] [0.013]
TENURE −0.028 −0.025** −0.030 −0.014 −0.044** 0.007
[0.019] [0.010] [0.020] [0.013] [0.017] [0.006]
Applicant controls
EMPLOYEES 0.002 0.016*** 0.001 0.017*** 0.010 −0.006**
[0.010] [0.005] [0.010] [0.006] [0.009] [0.003]
DUMMY_MISS EMPLOYEES 0.014 0.108** 0.009 0.141*** 0.088 −0.048**
[0.086] [0.045] [0.088] [0.053] [0.080] [0.024]
R&D INTENSITY 0.228 −0.654** 0.265 −0.290 0.012 −0.365*
[0.531] [0.283] [0.548] [0.309] [0.573] [0.208]
DUMMY_MISS R&D 0.011 0.021 0.009 0.058* −0.004 −0.021
[0.044] [0.024] [0.045] [0.031] [0.043] [0.015]
FIRM STOCK KNOW −0.023*** −0.023*** −0.023*** −0.023*** −0.012 0.011***
[0.009] [0.005] [0.009] [0.006] [0.009] [0.003]
NON_CORE_TECH −0.033 −0.004 −0.034 −0.021 0.001 −0.023
[0.053] [0.029] [0.054] [0.040] [0.040] [0.013]
SUBSIDIARY 0.003 −0.005 0.004 0.022 −0.029 0.002
[0.037] [0.020] [0.037] [0.025] [0.035] [0.015]
TOTAL NR FORWARD CITS 0.184***
[0.010]
Cons 1.609 −0.833* −1.951 −1.102* −0.038 0.289
[0.997] [0.438] [1.350] [0.575] [0.677] [0.275]
N 4,571 4,571 4,571 3,265 1,358 4,585
Wald chi-square 101.01 354.55 99.46 299.77 192.68 886.62
Chi-square test: constrained (6), unconstrained (8) 0.420
Chi-square test: constrained (7), unconstrained (8) 5.110**

Standard errors in parentheses. All regressions include dummies for inventor country, application year, firm SIC codes, and technological field (30 ISI-INPI-OST classes).
Columns (8) and (9) indicate regions split by the oppositions variable. The excluded instruments are GOVERNMENT FUNDS and SERENDIPITY. The MOBILITY of
inventors in the region is employed in specification (7) to instrument fear of imitation.
*p < 0.10; **p < 0.05; ***p < 0.01.

Copyright © 2013 John Wiley & Sons, Ltd. Strat. Mgmt. J., 35: 1144–1163 (2014)
DOI: 10.1002/smj
 Fear of Imitation and Knowledge Sourcing
is 0.52, so the null hypothesis cannot be rejected.
Moving from model 6 to 7 produces a chi-square
statistic for the hypothesis that the FEAR OF IMI-
TATION is 0 of 5.11, statistically significant at
2 percent.
For an additional check, we split the patents
into two groups, according to a measure of
potential deterrence (e.g., REGION DUMMY
OPPOSITIONS variable), and perform GMM
estimations for each subsample. In Table 6,
specification 8, the results match those we obtain
for the full sample when we include only patents
developed in regions in which previous patents
have been opposed by third parties. In less
technological competitive locations (specification
9, Table 6), the negative effect of the interaction
term is 0 and not statistically significant. We obtain
consistent results when we perform the two-step
regressions for internal and external knowledge
separately.
Finally, we investigate whether the interaction
term exerts effects on future R&D trajectories. In
line with path dependence theory (Dosi, 1988),
we expect that patents that depend mostly on
internal R&D processes are more likely to be
used and developed further internally by that
firm. Following Alcacer and Zhao (2012), we
test whether the combined effect of research
investments and absorptive capacity in the region
correlates with the number of self-citations—that
is, later patents by the same applicant citing
the focal patent—in the five years following
the application year, after we control for total
forward citations in the same period. As we
confirm with specification 10, the interacted term
is positively associated with the number of self-
citations (statistically significant at 10%).
CONCLUSIONS
The combination of external and internal knowl-
edge sources can enhance firms’ innovation suc-
cess (Cassiman and Veugelers, 2006; Chesbrough,
2003). However, while accessing external knowl-
edge, a firm’s own internal knowledge might spill
over, creating imitation and appropriability con-
cerns. Imitation threats then cause firms to cali-
brate the extent to which they use external versus
internal knowledge sourcing. We posit that firms
internalize R&D activities using more internal than
external sources of knowledge when costly R&D
Copyright © 2013 John Wiley & Sons, Ltd.
1159
investments are conducted in regions populated
by organizations with high absorptive capacity.
With data about 4,623 patented inventions, col-
lected directly from inventors, we find evidence
that supports this hypothesis. We also offer evi-
dence consistent with the idea that the fear of
imitation mediates these results.
Our contribution complements strategy and
international business research related to firms’
efforts to limit outward knowledge spillovers
(Agarwal et al., 2009; Alcacer, 2006; Frost, 2001).
When the knowledge at stake is potentially
valuable and the surrounding organizations have
sufficient absorptive capacity in the specific tech-
nology, firms might entrench themselves by vary-
ing the balance between their use of internal and
external sources of knowledge. To this end, they
could design human capital policies that offer
incentives, either for external interactions and col-
laborations or for secrecy and internal communi-
cation (Laursen and Foss, 2003). These policies
should be tailored to the specific R&D trajecto-
ries and knowledge characteristics of the exter-
nal environment, especially when large compa-
nies manage complex portfolios of different R&D
projects (Henderson and Cockburn, 1994) or when
dynamic, smaller firms undertake R&D activities
of different magnitudes over time.
Our work does not deny the importance of
geographic proximity as a channel for knowl-
edge spillovers. Rather, it shows empirically that
firms strategically try to entrench themselves and
limit knowledge spillovers only when two con-
tingencies concur; that is, when they run costly
R&D projects and are located in regions popu-
lated by organizations with high absorptive capac-
ity. In these cases, policymakers who want to
foster regional agglomeration benefits may envis-
age mechanisms that mitigate entrenchment, such
as incentives offered to firms to form exter-
nal R&D collaborations with neighbor organiza-
tions or encouragements to foster the division of
innovative labor among firms (Arora and Gam-
bardella, 1990; Parmigiani and Mitchell, 2009),
such that firms with different core competencies
exchange knowledge to exploit their complemen-
tarities. It is also worth noting that for our sam-
ple, when entrenchment occurs, the circulation of
knowledge spillovers diminishes only in the short
run, because in the long run, knowledge circu-
lates with the detailed information in the patent
documents.
Strat. Mgmt. J., 35: 1144–1163 (2014)
DOI: 10.1002/smj
1160 M. S. Giarratana and M. Mariani
On the flip side, we may be underestimating
the significance of the phenomenon, because our
sample consists only of patented inventions. We
do not observe innovations protected by pure
secrecy, though they may represent a significant
share of overall R&D (Cohen, Nelson, and Walsh,
2000). To soften this bias, we controlled for
firm dummies or firms’ assets—such as patent
stocks, R&D intensity, and size (and clustered
standard errors by firm)—all characteristics that
correlate with the ability of the firm to protect
its knowledge without formal intellectual property
restrictions, mainly downstream complementary
assets.
This point raises a further question: When does
entrenchment result in standard secrecy strategies,
compared with more complex strategies to obtain
external knowledge, such as hiring inventors
from other companies (Agarwal et al., 2009) or
using mergers and acquisitions to absorb others’
R&D personnel, existing patents, and laboratory
assets? Although our regressions control for the
tenure of the inventor within a firm and thus
show which inventors recently joined it, more
fine-grained data could shed new light on this
question.
Finally, our theory is grounded on the idea
that geographic proximity to firms with substantial
R&D absorptive capacity can generate fear of
imitation and entrenchment behaviors when the
size of the R&D investment is sufficiently large.
In this respect, it seems that fear of imitation
arises on a technological level too, regardless
of whether the receptor is a direct downstream
competitor or not. A different question that
this article does not address is whether and
how the fear of imitation increases or decreases
when neighboring organizations are direct product
competitors. We lack good direct proxies for local
market competition, so the entrenchment behavior
that we describe may represent a lower bound
of a stronger effect that conceivably might be
estimated with a wider data set that includes
a larger sample of innovations, such as those
protected by secrecy, and direct measures of
market competition in regions. With such a data
set, researchers could single out the different
impacts and magnitudes of fear of imitation
when it originates from technology and/or market
competition, as well as the extent to which the
two types of competition are complementary in
producing imitation threats.
Copyright © 2013 John Wiley & Sons, Ltd.
ACKNOWLEDGEMENTS
We thank seminar participants at LMU Munich,
Bocconi University, Carlos III Madrid, Copen-
hagen Business School, and AoM (Chicago) and
SMS (Washington) Conferences for their helpful
and encouraging comments. We also thank edi-
tor Will Mitchell and two anonymous referees.
We thank Dietmar Harhoff for helping us address
the patent family issue in the survey data. We
gratefully acknowledge financial support from the
European Commission (contract HPV2-CT-2001-
00013) and the Italian Ministry of University and
Research (project CUP B41J12000160008). The
usual disclaimers apply.
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APPENDIX
PATVAL-EU SURVEY: SAMPLE
SELECTION AND PATENT FAMILIES
For a complete description of the PatVal-EU
sampling procedure, see Giuri et al. (2007). The
population of patents from which we selected our
target sample consists of all EPO-granted patents
with priority between 1993 and 1997. We assigned
these patents to countries according to the location
of the first inventor listed: Patents from France,
Germany, Italy, the Netherlands, Spain, and the
United Kingdom represented 42.2 percent of total
EPO patents by country of first inventor (88.0%
of the EPO patents among the EU-15). The share
of questionnaires submitted to inventors in each
country reflected the country share of patents in
the overall population. We undersampled the share
of German and French patents and oversampled
patents from other countries to obtain sufficiently
large samples for all countries. Because French
patents might suffer from a respondent bias (see
Giuri et al., 2007), we excluded them from the
sample. To address the highly skewed distribution
of patent values, we oversampled “important”
patents, defined as patents that had been opposed
or received at least one citation, which produced
additional observations for these patents at the
aggregate EU6 level (43.2%), compared with the
initial population (28.5%). Our goal was to obtain
Copyright © 2013 John Wiley & Sons, Ltd.
10,000 usable questionnaires from the inventors,
with target numbers of 3,500 from Germany, 1,750
from France, 1,750 from the United Kingdom,
1,250 from Italy, 1,250 from the Netherlands, and
500 from Spain. The response rate in the pilot
surveys determined the number of questionnaires
to send in each country to obtain returns close
to the targets. In the end, we selected a stratified
sample of 27,531 EPO patents composed of all
opposed or cited patents from 1993 to 1997, as
well as a random sample of uncited and unopposed
patents from the same period.
In patent data, groups of patents might be part of
the same “family,” which would affect the standard
errors of the regressions. However, our patents
date back to a period in which filing multiple
related patents was not a common practice. To
confirm this likelihood, we investigated whether
the publication numbers in our sample are listed
in TLS205 (Technical Relationships), a database
built by EPO examiners to find patent filings
that, though unrelated by priority, are connected.
We found no matches. We also checked whether
within-EP equivalents exist (i.e., if the applicants
produced multiple equivalent patents out of one
priority) and found 28 × 2 cases of this sort. We
manually checked the extent of the overlap in
these 28 cases in terms of technology class, name,
and address of the inventors (e.g., Gittelman and
Kogut, 2003). Only 14 × 2 of these patents have
the same inventor listed with the same location
and same main IPC class. Therefore, only these
cases represent potential family concerns for our
data set.
Finally, our sample patents cover all 30 ISI-
INPI-OST technological classes, as indicated by
shares in parentheses: electrical devices, engi-
neering, energy (0.080); audio-visual technol-
ogy (0.020); telecommunications (0.033); informa-
tion technology (0.020); semiconductors (0.010);
optics (0.020); analysis, measurement, control
technology (0.052); medical technology (0.021);
organic fine chemistry (0.066); macromolecu-
lar chemistry, polymers (0.068); pharmaceuticals,
cosmetics (0.015); biotechnology (0.007); materi-
als, metallurgy (0.032); agriculture, food chem-
istry (0.012); chemical & petrol, basic materials
chemistry (0.042); chemical engineering (0.029);
surface technology, coating (0.017); materials pro-
cessing, textiles, paper (0.057); thermal processes
and apparatus (0.021); environmental technology
(0.016); machine tools (0.037); engines, pumps,
Strat. Mgmt. J., 35: 1144–1163 (2014)
DOI: 10.1002/smj
 Fear of Imitation and Knowledge Sourcing
turbines (0.032); mechanical elements (0.045);
handling, printing (0.077); agricultural and food
production, machinery, apparatus (0.018); trans-
port (0.069); nuclear engineering (0.004); space
technology weapons (0.004); consumer goods and
equipment (0.044); and civil engineering, building,
mining (0.032).
SUPPORTING INFORMATION
Additional supporting information may be found
in the online version of this article:
FIGURE S1. (a) Predicted probability of internal
knowledge use due to changes in absorptive capac-
ity and research investments. Notes: Graphical
representation of the interaction effect from the esti-
Copyright © 2013 John Wiley & Sons, Ltd.
1163
mates in Table S.2. Values of REGION ABSORP-
TIVE CAPACITY and RESEARCH INVEST-
MENT are in logs. The y-axis is the predicted
probability of internal knowledge use (p10). (b) Pre-
dicted probability of external knowledge use due to
changes in absorptive capacity and research invest-
ments. Notes: Graphical representation of the inter-
action effect from the estimates in Table S.2. Val-
ues of REGION ABSORPTIVE CAPACITY and
RESEARCH INVESTMENT are in logs. The y-axis
is the predicted probability of external knowledge
use (p01).
TABLE S1. Two-step estimations.
TABLE S2. Bivariate probit estimation of marginal
effects on the bivariate probabilities of internal and
external knowledge.
Strat. Mgmt. J., 35: 1144–1163 (2014)
DOI: 10.1002/smj