Disruptive innovation and R&D ownership structures of the firm

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

Abstract

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.

Citation

Guo, D., Huang, H., Jiang, K., & Xu, C. (2021). Disruptive innovation and R&D ownership structures of the firm. Public Choice, 187, 143-163. https://doi.org/10.1007/s11127-020-00850-1

• 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
• DOI: https://doi.org/10.1007/s11127-020-00850-1
• Keywords: Disruptive innovation; ownership; soft budget constraint; capitalism; socialism JEL Codes: G30; L2; O31; P51
• Public URL: https://nottingham-repository.worktribe.com/output/4903475
• Publisher URL: https://link.springer.com/article/10.1007/s11127-020-00850-1
• 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: http://dx.doi.org/10.1007/s11127-020-00850-1