Cao, Ma, Tucker, and Wan (2018), 'Technological Peer Pressure and Product Disclosure', The Accounting Review, Vol 93 (6), pp 95-126.
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Variable Definition
$$TPP = log(1+\frac{\sum_{j \ne i}\omega_{ij}\times G_{j,t}}{G_{j,t}})$$ where $j$ represents firm $i$’s rival (any firm that overlaps
with firm $i$ in the product markets), $t$ represents the fiscal year, $G$ is a firm’s R&D
stock, and $\omega_{ij}$ is the closeness weight. Specifically, $G$ is a firm’s cumulative R&D
investments in preceding years with the value of investments decaying by 15% as each
year passes, i.e., $G_t = RND_t + (1-0.15)G_{t-1}$, where $RND_t$ is the firm’s R&D expenses
in year $t$. $\omega_{ij}$ captures the spatial distance in the product markets between firms $i$ and
$j$ using industry segment sales: $$\omega_{ij} \equiv cos(\theta_{ij}) = \frac{V_i}{\parallel V_i \parallel} \cdot \frac{V_j}{\parallel V_j \parallel}$$
where $V_{i}$ is the vector of firm $i$’s sales with the $k^{th}$
element being the share of firm $i$’s total sales in the preceding two years made in
industry (4-digit SIC) $k$. A higher value of TPP indicates more intense competition
faced by the sample firm.