Waseda University reveals that corporate aging leads to innovation stagnation — Same trend observed in Japan and U.S.

On May 20, a research group led by Professor Hiroshi Shimizu from Waseda University's Faculty of Commerce and Assistant Professor Shotaro Yamaguchi from the University of Wisconsin announced that they had clarified the relationship between corporate R&D portfolio rigidity and innovation, explaining why corporate performance declines and innovation stagnates as companies age. Their research findings were published online (April 26) in the Journal of Evolutionary Economics published by Springer Nature.

It has been widely observed that as companies age, their profitability decreases and innovation declines. This has been attributed to corporate rigidity, which is why startups and other new companies have been considered important. However, the degree to which this rigidity has an effect was yet to be measured.

In response, the research group measured the degree of rigidity in major U.S. companies by using a method called cosine similarity to measure the proximity of their R&D portfolios to the past. Cosine similarity is a method for measuring the similarity between two things by representing them as vectors and expressing numerically how much these vectors point in the same direction.

While cosine similarity had previously been used to measure technological similarity between different companies, in this research it was applied to measure the similarity of R&D activities within the same company between different time periods.

As a result, it was observed that as aging progresses and corporate R&D portfolios become rigid, the quality of inventions decreases while the quantity increases. Although this research focused on U.S. companies, the same trend was reportedly observed in Japanese companies. In Japan, it has been pointed out that there is less corporate turnover compared to the United States, and "corporate aging" is progressing. Given this situation, the current findings reaffirm that "for aging companies, the ability to flexibly reconfigure management resources is strategically important" and that "promoting the creation of new companies and facilitating corporate exits is important."

While this study clarified the effects of corporate aging, the research group states that aging itself is not the problem, but rather the organizational rigidity that comes with aging. They plan to analyze what types of companies can age without becoming rigid.

Moreover, rigidity is not entirely negative. There may be achievements that can only be reached by continuing R&D in the same field. General purpose technology (GPT) is a prime example of this. When considering R&D from a societal perspective, the research group suggests that continuing cumulative R&D in the same field may also be important.

The researchers commented: "The problem of corporate aging is particularly pronounced in Japan. This time we analyzed U.S. companies, which are generally considered to have more flexibility in reconfiguring management resources. We see similar trends in Japanese companies due to organizational rigidity. In fact, our research found that Japanese companies have an even higher degree of rigidity. Japanese companies in their 30s have roughly the same degree of rigidity as 90-year-old American companies. Existing large corporations should play an important role in innovation. We want this to be the first step in considering how large companies can generate innovation without becoming rigid."

Journal Information
Publication: Journal of Evolutionary Economics
Title: Age of U.S. public firms, proximity to the past patent portfolio, and innovation
DOI: 10.1007/s00191-025-00898-6