Employee Disputes and Innovation Performance: Evidence from Pharmaceutical Industry

In this study, we use a hand-collected dataset of employee lawsuits to understand the effect of employee allegations on firms’ innovation in a human capital-intensive industry. We gather more than 2,293 employee disputes between 2000 and 2015 and test the relationship between employee lawsuits and Food and Drug Administration (FDA) product approvals in the pharmaceutical industry. We find that employee disputes lower the total number of FDA-approved products. We document that firms with frequent employee allegations maintain low innovation outcomes. Additional results show that case characteristics are an important determinant of FDA approvals; labor unions and case duration delay time-to-approval of submitted products, which may explain the deteriorated innovation outcomes. Overall, our findings highlight the importance of employee treatment in the workplace environment, which is ultimately related to firms’ innovation performance.