Abstract
This paper examines how government policy shapes the social identities of firms, and the subsequent impact this has on the returns to firm knowledge creation activities. In the pharmaceutical industry, regulations designed to expand access to valuable innovations by promoting imitation had the effect of legitimizing and crystallizing “imitator” as an identity category. At the same time, the emergent identity structure imposes constraints on the activities firms can engage in due to audience expectations and schemas. Data from FDA drug approvals show that laws loosening the standard for generic drug approvals passed in 1984 (i.e., Hatch-Waxman Act) sparked an influx of new imitator entrants, and sharpened the innovator and imitator identity categories as a result. Analyses of patent citation rates further suggest that firms with stronger generic identities suffer from an “imitator penalty” in the form of fewer patent citations to their existing knowledge stock, resulting in lower overall status for these firms.