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The Organization of R&D in American Corporations: The Determinants and Consequences of Decentralization

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  • Ashish Arora
  • Sharon Belenzon
  • Luis A. Rios

Abstract

We study the relationship between decentralization of R&D, innovation and firm performance using a novel dataset on the organizational structure of 1,290 American publicly-listed corporations, 2,615 of their affiliate firms, as well as characteristics of 594,903 patents that they hold. We explore the tension between centralization and decentralization of R&D, which trades off between responsiveness to immediate and local business needs and the type of research that can benefit the firm as a whole. To do this, we develop two novel measures of decentralization. First, using intra-firm patent assignments, we distinguish between patents that are assigned to the inventing unit rather than to corporate headquarters. Second, we exploit the variation between firms which posses a central corporate R&D labs and those that do not. We find that centralized R&D tends be more scientific, broader in scope, and have more technical impact, while being more likely in firms that operate within a narrower range of businesses, in complex technologies, or that are less reliant upon acquisitions. Additionally, we find that firms with a more decentralized structure, on average, invest less in R&D, generate fewer patents per R&D, and exhibit greater sales growth and higher market value. We discuss several theories that can explain these relationships, as well as potential avenues for future research.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17013.

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Date of creation: May 2011
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Handle: RePEc:nbr:nberwo:17013

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  1. Rebecca Henderson & Iain Cockburn, 1996. "Scale, Scope, and Spillovers: The Determinants of Research Productivity in Drug Discovery," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 32-59, Spring.
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Cited by:
  1. Arora, Ashish & Fosfuri, Andrea & Rønde, Thomas, 2012. "Managing licensing in a market for technology," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9048, C.E.P.R. Discussion Papers.
  2. Thomson, Russell, 2013. "National scientific capacity and R&D offshoring," Research Policy, Elsevier, Elsevier, vol. 42(2), pages 517-528.

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