Search Benefits of General Resources: Recombination Premiums of AI

Moh Hosseinioun and Ali Tafti.

Link to preprint

Abstract:The value of Artificial Intelligence (AI), as a general-purpose technology, to the firm is a central topic across disciplines. While the generality of AI is considered a key driver of its value, the resource-based theory offers the contrary view that the generality of a resource diminishes its payoffs.We address this knowledge gap by examining AI's role in shaping the firm's ability to produce innovative resources. Analyzing patenting data from 10,000 US firms between 1970 and 2020, we establish that firms with a broad AI resource base engage in more explorative and unrelated search behaviors. However, our findings reveal a discrepancy between accounting metrics (sales, ROA, Net Income) and market valuation (Tobin's Q), suggesting that while AI-induced exploration and unrelated search positively impact market perception, they do not immediately translate into accounting performance. Our research highlights AI's profound influence on firms' innovation strategies and the intricate relationship between AI's generality, search behaviors, and divergent performance outcomes, underscoring the need for a nuanced understanding of AI's role in the contemporary business landscape.

The figure shows AI pervasion, as a fraction of unique class combinations (in line plots) and across technology domains over (network snapshots) over time.