Strategic Innovation Coherence and the Financial Performance of Public Firms Under Market Discipline

Abstract

Financial performance is commonly attributed to the scale of firm resources, the efficiency of operating routines, and the ability of managers to transform strategic choices into cash-flow-relevant outcomes. Yet firms increasingly compete through innovation systems that combine technical investment, commercial execution, stakeholder-facing commitments, and market interpretation. This study examines whether the coherence of such systems helps explain subsequent financial performance beyond the level of innovation activity alone. Using an unbalanced panel of 412 publicly listed U.S. firms observed from 2015 to 2024, the study constructs a multidimensional measure of innovation coherence from annual disclosures, R\&D intensity, commercialization output, and environmental innovation activity. Financial performance is evaluated through next-year Tobin's Q, return on assets, sales growth, operating-margin change, and idiosyncratic risk. Dynamic panel models, firm and year fixed effects, instrumental-variable specifications, and mediation tests are used to assess the association between coherence and performance. The results indicate that innovation coherence is positively associated with valuation and accounting performance, with a one-standard-deviation increase in coherence predicting a 0.071 increase in Tobin's Q and a 0.84 percentage-point increase in return on assets. The relationship is partly mediated by innovation conversion efficiency and is strongest in moderately competitive industries. Coherence is less beneficial when technological concentration is high, suggesting that disciplined alignment differs from narrow search. The evidence supports a measured interpretation: coherent innovation systems appear financially useful, but their value depends on capability, competitive conditions, and the breadth of the underlying knowledge base