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Disruptive innovation and R&D ownership structures of the firm

Guo, Di; Huang, Haizhou; Jiang, Kun; Xu, Chenggang

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Di Guo

Haizhou Huang

Kun Jiang

Chenggang Xu


This paper provides a theoretical explanation as to why breakthrough innovations seem to be possible only within capitalist economies (Kornai 2013). Specifically, our theory explains why disruptive innovations are discovered and financed by large numbers of independently owned small firms in capitalist economies rather than in socialist economies where state ownership is the only option. The key is that the ownership structure of the firm affects the ex-post selection of worthwhile discoveries, which determines the fate of disruptive innovation. Our paper also contributes to empirical work on disruptive innovation, which is missing in the literature. We use new molecular entities (NMEs) in the pharmaceutical industry as a proxy for disruptive innovation. Although pharmaceutical companies are often very large, their R&D projects greatly depend on forming alliances with much smaller independent firms. We find that the number of NMEs discovered by pharmaceutical companies is positively and significantly associated with the number of R&D alliances in which they participate. Our theory is supported by the empirical findings.


Guo, D., Huang, H., Jiang, K., & Xu, C. (2021). Disruptive innovation and R&D ownership structures of the firm. Public Choice, 187, 143-163.

Journal Article Type Article
Acceptance Date Sep 13, 2020
Online Publication Date Oct 26, 2020
Publication Date 2021-04
Deposit Date Sep 14, 2020
Publicly Available Date Oct 27, 2021
Journal Public Choice
Print ISSN 0048-5829
Electronic ISSN 1573-7101
Publisher Springer Verlag
Peer Reviewed Peer Reviewed
Volume 187
Pages 143-163
Keywords Disruptive innovation; ownership; soft budget constraint; capitalism; socialism JEL Codes: G30; L2; O31; P51
Public URL
Publisher URL
Additional Information This is a post-peer-review, pre-copyedit version of an article published in Public Choice. The final authenticated version is available online at:


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