Allocation of property rights and technological innovation within firms

Abstract

Research Summary This paper examines whether ownership rights to strategic assets within firms affects innovation. Although existing research maintains that strategic assets can be leveraged freely within the firm, many firms allocate ownership rights to strategic assets to business units or subsidiaries. While scholars have examined strategic asset ownership rights as a tool for tax avoidance, scholars have yet to study its effects on innovation. In the context of multinational firms, I find evidence that subsidiaries with ownership rights produce more technological innovations and are more responsive to shocks to R&D opportunity than those without ownership rights. Additionally, the results provide evidence of the cost of tax avoidance strategies. When subsidiaries in technologically advantaged locations do not hold ownership rights, they produce fewer and less impactful innovations. Managerial Summary A key decision made by multinational firms is which subsidiaries should hold ownership rights to the firm's strategic assets. The choice often entails a trade‐off between allocating ownership rights to subsidiaries best positioned to innovate and manage the strategic asset versus to subsidiaries in income shielding locations to reduce the firm's tax bill. This paper examines whether subsidiary strategic asset ownership rights matter for subsidiary innovation. I find evidence that subsidiaries with ownership rights produce greater quantity and quality of innovations and are more responsive to changes in R&D opportunity than subsidiaries without ownership rights. This study highlights an important ramification of tax avoidance strategies: locating strategic asset ownership rights away from subsidiaries in regions of expertise can adversely affect innovation within the firm.

The Impact of Institutions on Collaborative Innovations and the Role of Equity‐Based Entry Modes

“…However, patents vary considerably in economic value. For this reason, we use an alternative measure of the dependent variable which is the cumulative sum of citations each patent receives (Magelssen, 2020).…”

“…However, patents vary considerably in economic value. For this reason, we use an alternative measure of the dependent variable which is the cumulative sum of citations each patent receives (Magelssen, 2020). include two institutional indicators: the Antidirector Rights index and the origin of the legal system.…”

Renewing the resource‐based view: New contexts, new concepts, and new methods

“…On the empirical side, more work is needed to specify the exact nature of technical interdependencies between resources and to map these to the drivers and consequences of various distributed organizing arrangements, potentially including the use of matching models to account for the mutual selection of actors within an ecosystem (Chatain & Mindruta, 2017; Mindruta, 2013). More empirical work is also required to understand the nature of coordination mechanisms within distributed organizations, including such mechanisms as intra‐firm contracting (Magelssen, 2020; Magelssen, Rich, & Mayer, 2022) or the use of internal courts of appeal within ecosystems (Chu & Wu, 2023; Liu & Weingast, 2017).…”

Favorable strategies for the success of entry into new technological areas: an entrepreneurial perspective

“…I employed forward patent citations (i.e., patent citations received) to proxy innovation performance, considering the usefulness of patented inventions and their impact on future patents as a manifestation of the importance of the innovation outcome (Anzenbacher & Wagner, 2020;Onal Vural et al, 2013;Papazoglou & Spanos, 2021). Forward patent citations, compared to a raw count of patents, offer a qualitative measure of innovation output in addition to the quantitative (Magelssen, 2020;Rothaermel & Alexandre, 2009;Rothaermel & Hess, 2007;Yayavaram & Chen, 2015). Besides, the validity of patent citations as an indicator of the quality and importance of innovations has been empirically supported by "the correlation between the inter-subjective assessment of the importance of patents by technical specialists and the number of citations" (Hagedoorn & Cloodt, 2003, p. 1369.…”