Creative Destruction: Evidence From Initial Public Offerings

Joseph Schumpeter coined the term “creative destruction” to characterize the impact of innovation on existing organizations. According to this perspective, creative destruction is driven by a firm’s introduction of discontinuous technology. We seek to extend this research by examining creative destruction pressures as they arise. We identify the impact that creative destruction pressures have when they are first felt by competitors. In addition to this, we develop theory to explain when these creative destruction pressures will be more severe. We hypothesize that incumbent firms are negatively impacted by market entrance of competitors. This impact will be more severe when the entering firm’s technology is new to the industry. In contrast, we hypothesize that incumbent firms which utilize coping mechanisms will be better able to withstand creative destruction pressures.