Innovation Coherence as a Strategic Determinant of Firm Value and Growth

Abstract

Innovation research has long emphasized the quantity of inventive effort, yet firms rarely compete on raw inventive volume alone. What often matters in practice is whether a firm’s disclosed innovation priorities, resource commitments, and realized outputs move in a mutually reinforcing direction that outside evaluators can understand and internal decision makers can execute. This study develops and tests the concept of innovation coherence, defined as the within-firm alignment among innovation disclosure, knowledge investment, commercialization output, and environmental innovation activity. Using a panel of 418 publicly listed U.S. firms observed from 2014 to 2023, yielding 3,144 firm-year observations, the analysis combines text-derived disclosure measures, accounting-based investment measures, patenting activity, verified product launch data, and environmental innovation indicators. The results show that higher innovation coherence is associated with higher next-year Tobin’s Q, stronger revenue growth, and lower operating cash-flow volatility, even after controlling for overall innovation intensity, firm fixed effects, year effects, and multiple sources of endogeneity. The estimated valuation effect is economically moderate: moving from the first to the third quartile of coherence is associated with a 6.8\% increase in next-year firm value. The effect is stronger when firms possess a stronger preexisting innovation reputation and when product-market competition is moderate rather than weak or extreme. By contrast, heavy concentration of inventive effort in a narrow technological portfolio weakens the gains from coherence. Mediation analyses indicate that part of the coherence effect operates through innovation conversion efficiency, meaning that aligned firms translate R\&D effort into market-facing outputs more effectively. The findings suggest that investors and managers respond not simply to more innovation, but to innovation organized in a credible and internally consistent architecture.}