Title: Innovation Strategy of Small Firms in Response to Zombie Decongestion

Abstract:

Research on organizational ambidexterity has largely explained exploration–exploitation choices through factors internal to firms. We argue that these choices also depend on the external opportunity structure. Using Germany’s 2012 insolvency reform (ESUG), which enhanced creditors’ participation in resolving large, distressed firms, we examine how decongestion from large zombie incumbents affects the innovation strategies of small, healthy firms outside the reform’s direct scope. Difference-in-differences estimates show that firms in more heavily congested industries increase exploratory innovation following ESUG, while exploitative innovation remains unchanged. The effect also appears on the extensive margin, as large-firm decongestion draws small, healthy firms into exploratory search. Consistent with our theory, the response is stronger in more competitive industries and where large incumbents are more labour intensive. These findings show that exploration is environmentally enabled as well as internally organized, and that insolvency institutions can reshape the composition of innovation among firms outside their regulated scope.

Short Bio:

Luu Duc Toan Huynh is an Associate Professor at Queen Mary University of London. His research spans applied economics, political economy, international trade, and the economic consequences of conflict, sanctions, and major policy shocks. His work has appeared in leading journals, including the Journal of International Economics, Journal of Management Studies, Regional Studies, International Public Management Journal, and Journal of Population Economics. He is Editor-in-Chief of International Finance and Co-Editor of Evaluation Review. He currently serves as a Guest Editor for a special issue of the European Economic Review on “Global Trade Fragmentation and Regional Trade Alliances” (submission deadline: 31 March 2027) and previously served as a Guest Editor for the Journal of Economic Behavior & Organization.

His recent research examines the long-term effects of the Vietnam War, Brexit and labor demand, trade fragmentation, macroprudential policy and innovation, and firm responses to sanctions and trade wars. He has received research funding from the British Academy/Leverhulme Trust and has been a Visiting Researcher at the Bank of Finland Institute for Emerging Economies (BOFIT). His research has also contributed to policy debates, including through policy citation in a Greater London Authority (GLA) report.

His University website: https://www.qmul.ac.uk/businessschool/staff/academic/profiles/huynht.html

His Google sites: https://sites.google.com/view/toanluu/home