Foreign Competition and New Product Creation: Evidence from Trademark Data

Wenrui Zhang is an Associate Professor at the Department of Finance of the Chinese University of Hong Kong. He has taught Financial Management and Security Analysis for undergraduate students and Security Valuation for master students. His research interests mainly lie in the field of empirical corporate finance, including corporate governance, mergers & acquisitions, corporate innovation, capital structure, employee compensation, corporate social responsibility, and financial disclosure and reporting. His research has been published in the Journal of Financial Economics and Management Science.

We examine the impact of foreign competition on corporate product development. Using registered corporate trademarks as a proxy for new product creation, we find that domestic firms react to strong foreign competition by reducing new trademark applications. The negative effect is more pronounced for firms operating in more competitive industries, financially more constrained firms, and firms exposed to higher predation risk. Moreover, the reduction in the quantity of new trademarks due to fierce foreign competition is accompanied by a decline in the economic value of newly registered trademarks. Further analysis shows that firms adopt heterogeneous trademarking strategies in response to foreign competition depending on their industry positions. Taken together, our findings reveal the role of foreign competition in shaping domestic firms’ product development strategies.