Project Termination Discipline and Innovation Renewal After Commercial Shortfalls in Publicly Listed Manufacturing and Technology Firms

• Agus Firmansyah

  Universitas Teuku Umar, Faculty of Economics and Business, Department of Business Information Systems, Jalan Alue Peunyareng, Ujong Tanoh Darat, Meulaboh 23615, Aceh Barat, Indonesia

  Author

• Hendra Wijaya

  Universitas Musamus, Faculty of Economics and Business, Department of Management Information Systems, Jalan Kamizaun Mopah Lama, Merauke 99611, Papua Selatan, Indonesia

  Author

• Ilham Prakoso

  Universitas Khairun, Faculty of Economics and Business, Department of Digital Business and Information Systems, Jalan Jusuf Abdulrahman, Gambesi, Ternate Selatan 97719, North Maluku, Indonesia

  Author

Innovation programs are often discussed in terms of search, investment, and breakthrough potential, yet a large share of managerial innovation work concerns a less celebrated activity: deciding which projects, prototypes, and newly launched offerings should be stopped once they underperform. Firms differ markedly in how they respond to commercial disappointment. Some persist too long with weak initiatives, absorbing engineering attention and marketing support long after the probability of recovery has become low. Others cut too aggressively, damaging knowledge continuity and reducing the stock of partially developed options that can later be recombined into viable products. This paper investigates whether a firm’s post-shortfall termination discipline influences subsequent innovation renewal. The analysis uses a panel of 251 publicly listed U.S. firms from 2012 to 2024 and identifies 1,462 firm-year episodes in which recently introduced products or development initiatives exhibit measurable commercial shortfall. A composite measure of termination intensity is constructed from discontinued launches, withdrawn pipeline claims, lapsed patent applications, and technology impairment charges. The evidence indicates an inverted-U association between termination intensity and subsequent innovation renewal. Moderate termination is followed by higher patent quality, a larger share of sales from products introduced within the prior three years, and lower idiosyncratic return volatility. Both underreaction and overreaction are costly. The estimated effects are economically meaningful but not extreme. Relative to firms in the lowest quartile of termination intensity, firms near the interior optimum generate 4.4\% higher next-year citation-weighted patent output and 2.1 percentage points more revenue from recent products. Mediation analyses suggest that the pattern operates partly through faster resource release and more selective redeployment. The findings indicate that innovation performance depends not only on what firms initiate, but also on how carefully they stop.

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